Biogen Inc (BIIB) 2016 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen first-quarter 2016 financial results and business update conference call.

(Operator Instructions)

I would now like to turn the conference over to Mr. Matt Calistri, Senior Director of Investor Relations for Biogen.

Thank you and welcome to Biogen's first-quarter 2016 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 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, and our new Chief Commercial Officer, Michel Vounatsos is with us here today.

Now I'll turn the call over to George.

Thanks, Matt.

Good morning, everyone, and thanks for joining us this morning.

For the first quarter of 2016, Biogen generated $2.7 billion in total revenues, a 7% increase from the same period a year ago.

And our non-GAAP EPS was $4.79, 25% increase from the same period a year ago.

As you've heard from us since the beginning of the year, a cornerstone to our strategy for sustainable growth is our healthy commercial business and a strong focus on profitably managing expenses, and I think these results should reinforce that message.

TECFIDERA continues to gain share globally, now with more than 190,000 patients having been treated.

And at AAM this week, we presented compelling data that showcased its strong and sustained efficacy in newly diagnosed MS patients, emphasizing that earlier treatment with TECFIDERA improves long-term clinical outcomes.

We also presented compelling data about TECFIDERA's real-world efficacy.

Last month we announced that our new Executive Vice President and Chief Commercial Officer, Michael Vounatsos had joined us.

Michel brings a wealth of experience from 20 successful years of increasing responsibility at Merck, most recently as President of Primary Care and Customer Centricity.

Michel officially started on Monday, and we're excited to be working with him.

He'll be instrumental in driving our near-term growth while helping to prepare the organization to support our exciting pipeline.

In the first quarter, we launched BENEPALI, our biosimilar version of Enbrel in six European countries -- the UK, Germany, Denmark, Norway, Sweden and the Netherlands.

And FLIXABI, our biosimilar version of Remicade, received a positive opinion from the CHMP, and we're awaiting approval from the European Commission shortly.

And, of course, an important part of our strategy for sustainable growth is our pipeline of potential future therapies.

Notably, aducanumab is enrolling patients in two Phase 3 trials.

Opicinumab, which is anti-LINGO, results are expected mid year.

And nusinersen, in collaboration with IONIS, is close to completing enrollment of the Phase 3 trial called ENDEAR.

Al will provide more color on the pipeline during his comments.

Finally, I would like to make a few comments to address some questions that I know will come.

First, we're in the final stages of hiring an R&D head and expect to make an announcement shortly.

Second, like you, we read the media reports about our hemophilia business and the subsequent analyst reports.

As a matter of policy, we do not comment on speculation, and will not do so in this instance.

We're in an exciting stage in the evolution of Biogen.

We're encouraged by the trajectory of our commercial portfolio, and will continue to focus on cost containment to maximize our earnings.

We're eagerly awaiting the data from opicinumab and nusinersen and we're pleased with the early enthusiasm for our biosimilars in Europe.

We've recently brought several new compounds into development, and we continue to look for opportunities outside of Biogen.

And with that, I'll turn the call over to Al who will update you on our progress in R&D.

Thanks, George.

Good morning, everyone.

This quarter we continued to execute on our pipeline candidates and generate new data to support our commercialized products.

Starting with opicinumab, or anti-LINGO, we are looking forward to seeing the Phase 2 data, which is still scheduled for the middle of this year.

I should note that no one has seen these data yet, but after more than a decade of work on LINGO, beginning with discovering the gene and then elucidating its biology, most of which was conducted at Biogen, we're excited to learn about opicinumab's potential as a reparative therapy for MS.

In Alzheimer's disease, we are working diligently to enroll our aducanumab Phase 3 trials and are pleased with progress thus far.

Looking ahead, we anticipate safety data from the titration arm of the Phase 1B PRIME study in the second half of this year.

Amiselimod, or MT-1303, our S1P1 inhibitor for IBD, is currently being tested in a Phase 2 trial in Crohn's disease, and we are working towards the start of Phase 3 studies in ulcerative colitis and Crohn's disease in the second half of this year.

Raxatrigine, a small molecule inhibitor of the NAV 1.7 sodium channel, is anticipated to begin a Phase 3 trial to confirm its efficacy in patients with trigeminal neuralgia.

And we are also planning to initiate a Phase 2 trial in patients with painful lumbosacral radiculopathy later this year.

Turning to our hemophilia products, we find the data that was presented at the December ASH meeting on immune tolerance induction with ELOCTATE quite encouraging.

We believe that the Fc portion of the infusion proteins utilized in both ELOCTATE and ALPROLIX may offer additional benefits beyond half-life extension, although these preliminary findings will require confirmation from additional studies.

At this week's American Academy of Neurology meeting, we presented important new data demonstrating the breadth and diversity of our marketed and pipeline multiple sclerosis therapies, including TECFIDERA, TYSABRI, ZINBRYTA, and PLEGRIDY.

Let me provide some of the highlights of our presentation.

TECFIDERA was shown to provide sustained and strong efficacy in newly-diagnosed MS patients, reinforcing that earlier treatment with TECFIDERA is important in improving long-term clinical outcomes.

We also presented the results of another study that retrospectively examined the health insurance claims database of more than 5,000 patients in routine clinical practice.

Annualized relapse rates one year after starting disease modifying therapy were compared to the year before therapy initiation.

These real world data support the efficacy of TECFIDERA treatment seen in the controlled clinical trials, and this, combined with its safety profile and oral convenience, make it a very compelling therapeutic option for MS patients.

Data presented at AAN reinforced the nearly ten years of clinical experience with TYSABRI, confirming its high efficacy, reversible immune effects and well-characterized safety profile.

ZINBRYTA, with its target and reversible mechanism of action, was shown to be positive on key MS cognitive outcomes.

PLEGRIDY was shown to reduce the conversion of newly-acquired MS lesions into T1 black holes, which have been associated with axonal loss.

Also at AAN, our collaboration partner IONIS presented an update on the ongoing open-label Phase 2 trial of nusinersen in infants with spinal muscular atrophy.

An analysis as of January 2016 showed no new events as defined by progression to permanent ventilation or death in the study since December of 2014, continued increases in muscle function scores, and achievement of new motor milestones when compared to natural history studies.

We believe these data look increasingly encouraging, and that nusinersen could represent an important new therapy for spinal muscular atrophy.

With respect to our earlier-stage efforts, at our R&D day last November, we talked about using human genetics to identify causal biological pathways as we strive to discover and develop new treatment for difficult diseases.

In February, we joined the Centre for Therapeutic Target Validation, the pioneering public-private collaboration that fosters interactions between academic and industry members for the purpose of developing open, transformative approaches to selecting validated novel targets in drug development.

This collaboration expands on our strategy of using genetically validated targets, biomarkers and multiple therapeutic approaches to decrease the risk of drug development.

With that, I'll now pass the call to Paul.

Thanks, Al.

Our GAAP diluted earnings per share were $4.43 in the first quarters, while our non-GAAP diluted earnings per share were $4.79.

Total revenue for Q1 grew 7% year over year to approximately $2.7 billion.

Our revenue growth was driven by the stable patient trends we now see for TECFIDERA and TYSABRI in the US, and continued growth in ELOCTATE and ALPROLIX.

Although PLEGRIDY showed meaningful growth, our overall interferon business declined compared to the first quarter of last year as the market continues to migrate to orals.

Overall, we're pleased that the breadth and strength of our product portfolio enabled us to absorb such fluctuations, expand our top line, and maintain our global MS market share of approximately 38%.

As a reminder, we had $173 million in foreign exchange hedge gains in 2015, which has begun to impact our year-over-year comparisons.

Compared to the first quarter of last year, we had $26 million less in hedge gains this quarter.

Combined with the $24 million headwind from natural foreign exchange rates, overall revenue was weakened by approximately $50 million year after year.

I'll highlight the FX impact for each of the therapies.

Global first quarter TECFIDERA revenue was $946 million.

We recorded revenues of $744 million in the US and $202 million outside the US.

In the US, we believe there was a drawdown of TECFIDERA inventory in the wholesale channel, representing approximately $20 million versus prior quarter.

Despite an expected choppy start to the quarter as we worked through the typical seasonality issues, we believe underlying US TECFIDERA patient demand is largely stable.

US gross to net percentage was comparable to Q4 and largely consistent with our average expected rate for the balance of the year.

Outside the US, foreign-exchange impact, including the reduction in hedge gains, weakened full-year TECFIDERA revenue by approximately $14 million year over year.

Last October we bolstered our marketing efforts in the US by launching a television campaign aimed at increasing patient awareness about MS and TECFIDERA.

We believe we did increase awareness.

Our current TV campaign will expire in the middle of this year.

For various reasons, we plan to sunset this lever and don't currently plan to purchase additional TV spots beyond the middle of the year.

We do, nevertheless, plan to continue our marketing efforts across other print and digital channels.

Interferon revenues, including both AVONEX and PLEGRIDY, were $670 million during the first quarter, which includes $467 million in the US and $203 million in sales outside the US.

In the US, the results were weaker than anticipated due to a combination of lower underlying demand as patients continued to move toward orals, seasonality issues, and a draw down of AVONEX wholesale inventory of approximately $20 million.

Outside the US, foreign-exchange impact, inclusive of a reduction in hedge gains, weakened Q1 interferon revenues by approximately $20 million year over year.

Now moving to TYSABRI, with nearly 10 years of post marketing experience, TYSABRI continued to add patients this quarter with worldwide revenues of $477 million.

These results were comprised of $288 million in the US and $189 million internationally.

We believe TYSABRI's well-understood safety profile and robust efficacy position it well.

Foreign-exchange impact, including a reduction in hedge gains, weakened Q1 TYSABRI revenue by approximately $14 million year over year.

Turning to our hemophilia business, ELOCTATE revenue for the quarter was $108 million and ALPROLIX revenue in Q1 was $75 million.

We recorded $329 million for Q1 in our anti-CD20 collaboration, which includes our profit share from RITUXAN and GAZYVA in the US, as well as our profit share in royalties on sales of RITUXAN outside the US.

As expected, our share of pre-tax profits in the US on sales of RITUXAN decreased from 40% to 39% at the end of February following approval of GAZYVA in RITUXAN refractory indolent non-Hodgkin's lymphoma.

Total other revenues, which include revenues from collaboration relationships, royalties, and contract manufacturing, were $88 million.

We continued to benefit this quarter from contract manufacturing revenue related to a strategic partner.

Now turning to the expense lines on the P&L, Q1 cost of goods sold were $313 million or 11% of revenue, as we experienced lower than typical write offs of manufacturing runs in inventory.

Q1 R&D expense was $437 million or 16% of revenue.

Of note, in Q1 we did not have any meaningful business development expense.

Recall in the fourth quarter we made a $60 million payment to Mitsubishi Tanabe related to the in-licensing of MT-1303.

Additionally, the lower than expected R&D run rate seen in Q1 was also favorably impacted by the timing of clinical manufacturing campaigns and other R&D activities.

Q1 SG&A expense was $497 million or 18% of revenue.

We remain focused on achieving savings in non-labor expenses with the objective of reducing lower priority fees and services for the balance of 2016.

Other net expense was $53 million in Q1, which includes the interest expense related to our 2015 bond offering.

In Q1, our non-GAAP tax rate was approximately 26%.

This rate was negatively impacted by approximately 150 basis points related to discrete items.

Our weighted average diluted share count was approximately 219 million for Q1.

And we ended the quarter with approximately $6.8 billion in cash and marketable securities with approximately 45% of this in the US.

This brings us to our non-GAAP diluted earnings per share which were $4.79 for the quarter, representing a strong 25% increase year over year.

Over the last few years, we've gone through an unprecedented number of product launches and thought it was the right strategy to not be penny wise and pound foolish.

Starting in 2015, we pivoted to initiate a number of measures to curb operating expense growth.

And late in 2015, we announced a restructuring, and we believe the benefits materialized this quarter.

For the balance of the year, we're focused on commercial execution and diligent efforts to further reduce spending, where appropriate, while ensuring we simultaneously support the advancement of the pipeline.

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

Okay.

Thanks, Paul.

I'm pleased with the start of the year and especially with the 25% increase in earnings versus Q1 of 2015.

For the remainder of the year, we're focused on three areas -- careful control of our costs, maximizing our revenues and rapidly advancing the pipeline.

The cost reduction actions that we took last year resulted in a meaningful increase in earnings this quarter.

And as we move through the year, we'll continue to focus on cost control to do all that we can to concentrate our resources on the activities that we believe will add the greatest value.

On the revenue side, we're pleased to have Michel Vounatsos join us.

I'm very confident in Michel, and look forward to all that he and his team will do to maximize the value of our commercial portfolio as we move through this year and into next.

We have great drugs that are benefiting a lot of patients, and we want to maximize the benefits to both patients and our shareholders.

Additionally, we hope to launch two additional compounds this year, ZINBRYTA and in the EU, FLIXABI.

Since we think of revenue on a multi-year basis, we also will continue our focus on pursuing opportunities outside of Biogen.

We continue to track companies and compounds that are potentially interesting for us, and we are in constant discussions with multiple parties from the types of tuck-in acquisitions that we've done historically to later-stage assets closer to commercialization.

And, as we said in previous calls, we want to be active in this area while remaining financially disciplined.

This is a very important year for the advancement of our internal pipeline.

It's important to make sure that the enrollment in the two Phase 3 trials of aducanumab continues to go well.

We're pleased with how we're tracking so far, but it's still early, and we want to make sure that we stay on or ideally ahead of schedule for patient enrollment.

We aim to get the Phase 3 trials for raxatrigine and amiselimod started on schedule.

And we need to make sure that our early pipeline progresses quickly and that we make fact-based go/no-go decisions.

And, of course, once we have the Phase 2 data for opicinumab in the middle of the year, we'll quickly decide on the appropriate path forward for opicinumab itself and for the other remyelinating programs in our pipeline.

As Al mentioned, the open-label data for nusinersen continue to look encouraging, and we need to do everything that we can to minimize the time to see data from the Phase 3 trials, and if positive to get the drugs to patients as soon as possible.

Although not so visible from outside the Company, we'll continue to invest in R&D.

We believe that our strategy of building world-class research and development will not only help us identify important new therapies ourselves, but will also help us to make thoughtful, sophisticated decisions about what to bring in from outside the Company.

So we have a lot to do.

This is a year for us to keep our heads down and focus on execution in all of the areas that I just outlined.

We have a great team and a dedicated group of employees.

And as always, I would like to thank our employees for making a positive impact on patients' lives and to thank the patients and physicians involved in our clinical development programs.

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

Thank you all for joining us this morning.

And, operator, we'll now open up the call for questions.

(Operator Instructions)

The first question comes from Matthew Harrison from Morgan Stanley.

Your line is open.

Thanks for taking the question.

I'm going to ask a two-part question, which you'll probably give me a hard time for.

On TECFIDERA, can you just talk a little bit about what has gone on outside the US?

If you back out the FX movements that you were talking about, you only saw a sequential $9 million increase in revenues.

Is volume substantially slowing outside the US?

And then maybe just related to that, you had some contracting changes across the portfolio, specifically with CVS last year.

Any big impacts to gross to net or some of the trends that may have affected the interferon franchise?

Thanks.

Thanks, Matt.

Great question.

This is Paul.

I'll try to take it.

We're actually pretty pleased outside the United States.

I'd say Germany is a place where we'd like to see performance a little bit better.

It probably looks a lot like the United States' performance of TECFIDERA getting darn close to a 20 share and not punching through over the course of 2015.

That's an important market outside the United States, as you all know.

When I go across other parts that really are the big contributors outside the United States, it's obviously France, UK, Southern Europe, countries of Italy and Spain.

And we're very pleased with the performance in Southern Europe.

Those are early days in terms of the launch curves for TECFIDERA specifically.

We're very, very pleased with that.

The performance has exceeded our expectations.

And certainly, as we pointed out in the past, our UK performance is exceptionally strong.

We feel it's a remarkable team there.

They've really broken down the marketplace and attacked it quite vigorously across the suite of Biogen MS therapies.

So I think very pleased, I'd say, with the performance outside the United States, with a little bit of homework to do in Germany, which I think we're actually showing some early signs, very early signs, late in the quarter, positive signs.

With respect to contracting, it is, as people know, specific to AVONEX and PLEGRIDY, specific to newly-diagnosed patients.

I think that you combine that with typical seasonality issues in Q1.

And we still feel we made the right choices there in terms of as we moved into 2016.

So we don't think there's been a meaningful impact.

Certainly working through prior authorizations and things like that for some of the patients has become a more active part of what we do in our patient services organization.

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

Your line is open.

Sorry.

Thank you very much for taking my question -- not plural.

(laughter)

Paul, congrats again on great P&L management.

We all appreciate it and your investors appreciate it.

So many questions to ask.

Maybe, Al, just because this is the one I get the most.

Just going back to the Eisai collaboration and the Abeta antibody that may or may not have data shortly.

The question that I've been getting -- I'd just love to hear your thoughts -- are you emphasized a lot when looking at these competing Abeta antibodies, really understanding what the imaging data show post therapy data, is this a drain plaque from the brain?

And if the answer to that is no, then the clinical outcome is perhaps less important because it doesn't do what your AMAB does, so to speak.

But there's been some questions about specifically where the Eisai antibody binds, which type of fibrils, and whether or not, given its specific binding affinities, whether or not you would expect necessarily to see changes on PET scan.

So I was just wondering if you could talk us through that.

Thanks so much.

Yes, Mark.

The BAN2401, it's my understanding, binds the protofibrils as well as oligomers.

And I would expect it to reduce amyloid plaque burden.

The question for me is does it do that, first of all?

And, second, to what degree?

The thing that was remarkable about aducanumab was that we had a very substantial reduction in the course of one year, arguably 85% or so.

Competitor antibodies have not done that.

And I don't know where 2401 will land, but that's an important piece.

And then we can then start to understand the relationship between reduction and plaque burden and cognitive outcome.

In our hands in the aducanumab program, only the patients who reduced plaque burden by greater than 1 standard deviation changed relative to what the placebo patient did -- in other words, beyond the noise.

Those are the people who got cognitive benefit.

The people who did not do that did not have any benefit that we could detect.

So we think that's an important piece to look at.

Your next question comes from the line of Alethia Young from Credit Suisse.

Your line is open.

Hello.

Thanks for taking my question.

Congrats on the expense management, as well.

From the DTC campaign that you have with TECFIDERA, what were some of the learnings that you took away for that campaign around the television forum and why you chose to keep the print?

And just similar along that line, do you have any color on what the average duration for TECFIDERA is right now in the United States?

I'll take the first part of that question.

The main purpose of the ad campaign, television campaign, was to increase awareness of TECFIDERA.

We were surprised actually at the beginning by the low awareness among patients of TECFIDERA.

And we had data suggesting that when patients did learn about TECFIDERA and went to their physician to discuss it, they often had it prescribed.

So we wanted to get the awareness up.

The ad did succeed in getting awareness up.

And then the thesis is, once awareness is up and they have those discussions, they'll go to their physicians; and we'll see an increase in prescriptions.

We've said we would see that, if we do, in Q2.

We're in Q2, so I think we'll have a final verdict on the success of that TV campaign when we talk to you next quarter.

Those ads don't run forever, so we're taking a pause.

We'll continue our other types of activities.

And we'll see what we learn and make decisions about any potential future television ads.

This is Paul.

I'll try to take the second part of your question.

Let me answer it in a slightly different way that is a little bit more customary to the way we look at the data and probably more indicative.

We try to triangulate on what we call discontinuation rates, the percentage of patients that leave a therapy, call it, over the course of a 52-week period.

And all the disease modifying therapies have discontinuation rates.

And we think that TECFIDERA experienced higher discontinuation rates than normal as we move through 2015, largely due to lymphocyte monitoring and a label change.

We actually, importantly, think that we're hopefully on the back side of that, that the medical education has largely been completed.

It obviously never stops, but we're hopeful actually that can provide a little bit of a tailwind as we move through 2016 and as it begins to get back to a more normal level.

Your next question comes from the line of Geoffrey Porges from Leerink Partners.

Your line is open.

Thank you very much, and thanks for taking the question.

Paul, could you give us some color on how the rest of the year is looking now?

You obviously have got a tailwind here with significantly lower R&D expenses.

You've tightened your belt on SG&A.

But you did have what looks like $45 million of sequential currency headwind or loss of hedging from Q4.

So how should we think about those drivers for the rest of the year?

Can you keep this level in R&D and SG&A?

And should we anticipate this kind of magnitude of currency effect through the balance of the year because of your hedge positions?

Great questions, Jeff, because it's a dynamic -- the loss of hedging.

Not a surprise to us.

That was actually part of our business plan as we swung into 2016.

Fundamentally, we don't make predictions about where currencies are going to go.

But we fully anticipated the fact that we had hedge gains throughout the P&L in 2015 that really come about from the hedges that we put on in 2014.

So it's essentially a wraparound effect of the currency changes, mostly in the EU, as we ended -- if you remember the changes were very end of December of 2014 and January of 2015.

So that was fully expected.

We believe that will just continue to be a bit of a headwind, which we had thought about.

The R&D -- I think I'd point out one key dynamic is it's always a little bit choppy, R&D as a percentage of sales based on business development activity.

And we certainly want to and would welcome really good business development activity.

That's always a positive investment, a positive expense if done correctly.

With all of that said, no doubt about it that, as I said, we have made cost control and feel like we're reaping the benefits of what we did late in 2015 as we came into this year.

And I think it will continue to be a meaningful effort from me, from the whole organization, to make sure we focus on efficiencies throughout the year.

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

Your line is open.

Maybe on that R&D investment, either for Paul or George, we all appreciate the focus on the bottom line and cost, and appreciate also there were some puts and takes in Q1.

But you're down at 16% of revenue in the first quarter.

That's, I think, an all-time low for Biogen.

Is that an appropriate rate for this Company long term -- three to five years -- in terms of investment?

Thanks, Eric.

Let me take that question.

Our R&D is choppy.

And I don't want anybody to interpret that number as a deliberate effort to cut back on R&D and a deemphasis on R&D.

It is quite the opposite, actually.

We are continuing to build a world-class research group.

We will continue to invest in research.

We believe that is a fundamental part of our strategy to build value.

I think we've done a really good job so far.

We'll continue that focus.

Clinical development -- we will spend whatever is necessary to move our pipeline forward, those pipeline compounds that are high potential, high value.

We've talked about those.

We'll continue to invest in those.

Frankly, the expenses there we would expect to go up over time as we move more compounds into Phase 3.

So I think the trend is largely in that direction.

And part of this quarter was also, as Paul said, the lack of BD.

There's not going to be a lack of BD forever.

It's a lack in one quarter.

So I don't want anybody to interpret the one-quarter number as a change in our strategy or a de-emphasis of R&D.

It's quite the opposite, actually.

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

Your line is open.

Hello.

Thanks for the question.

I know you're not commenting on other outside reports on hemophilia, but I wanted to ask bigger picture.

There's been changes in the market.

The incumbent is being acquired.

There's gene therapy data yesterday.

Maybe you could talk a little bit about the push/pulls for this business.

Is this business the business you've been thinking about?

And maybe talk a little bit about how this fits in overall in the growth that you see here, given all of the changes going on in hemophilia.

Thanks.

Sure.

Happy to take that.

ELOCTATE and ALPROLIX are doing well.

They're gaining market share, and we're pleased with their performance.

And they're continuing to gain share, so we're feeling good about there.

We have not yet seen any impact on their trajectories from the introduction of other long-acting factors, so we take that as a positive sign.

So I think the prospects for the business look quite healthy.

In the longer term, there are a number of products, as there are in every therapeutic area coming forward.

And we're keeping a close eye on them.

We saw BioMarin's data, which are interesting but early.

I haven't seen anything that you haven't seen.

I saw good Factor VIII levels that persisted for some period of time.

And we saw some liver enzyme issues that needed to be treated with corticosteroids.

So we'll see how that plays out over time.

Those are early -- I would say interesting data but early.

It's similar, I think, to our immune tolerance induction data that we have with ELOCTATE.

We haven't talked about this a lot, but a fair number of hemophiliacs develop inhibitory antibodies when they're treated.

And that results in the necessity for immune tolerance induction, which means high levels of factor that are given over 12 to 18 months before immune tolerance emerges.

There have been a very limited number of patients, three, so I don't want to overstate this.

Again, these are very early data; and I don't want to be here overstating the case.

But, again, these are early data but also encouraging.

Of the three patients that have been treated with ELOCTATE from the intolerance induction, they all became tolerant within about three to four months -- so a much shorter period of time.

If those data are confirmed in further studies, we believe that could be an important upward lift for ELOCTATE.

So I think there are lots of early data emerging.

They all need to be confirmed with larger studies.

And we feel good about the business and where we are.

We have our own longer-acting factors coming.

We've talked about some of them.

There are earlier ones that are in our research group now.

So I think we feel good about the current products.

And we feel good about the future of the business as well.

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

Your line is open.

Thanks for taking my question.

First one is, many investors think you have a lot of flexibility on the balance sheet because you don't have much net debt.

I'm just probing -- maybe the question is for Paul -- what's the willingness here to do another significant share buyback given your balance sheet strength?

And then, secondly, I want to ask about the TECFIDERA inventory situation here.

In fourth quarter, you had a $30 million inventory build in the US.

And then there's a destocking of $20 million this quarter.

Should we expect another $10 million to go next quarter?

Thank you.

Okay, Ying, why don't I try to clean up the clarity on the second part of your question.

The $30 million that I talked about last quarter was our best estimate at that time.

In retrospect now, it probably is closer to the $20 million.

In reality, it's probably in between.

So I think that we've gone through the destocking of what we talked about last quarter and just wanted to clarify it with the prepared remarks.

With respect to the balance sheet, I think it gets to the broader question of capital allocation.

Currently, we're actually sitting on a pretty high cash balance.

As I pointed out, like many others, we have the peculiar situation of ex-US cash is a little bit more than half of that.

But aside from that, that largely arises out of two things -- the great, strong cash flow generation of the Company coupled with the debt financing that we did in the fall of 2015.

I think we will look to strategically deploy it.

And if we come up that there are not options to strategically deploy it, we will look towards returning capital to shareholders.

We don't measure that on, as we've talked about before, a 90-day basis just because that's not the clock speed of thing.

In both situations, it depends on price and value, so it depends.

And in both situations, the financial objective is to maximize intrinsic value per share.

So we look towards investing in deployments of capital that really drive great internal rates of return.

I think I'd also point out, over a longer period of time, I think this Company with the great cash flow generation it has, has flexibility to do both.

Your next question comes from the line of Robyn Karnauskas from Citigroup.

Your line is open.

Hello.

Thanks for taking my question.

Just a question on strategy a little bit in thinking about the Company longer term.

You've got MS business now stable, but it's safe from compression from new therapies.

And you have hemophilia as a growing business and pipeline.

I'm just wondering how are you thinking about how important it is to diversify the business further?

Do you have any concerns, or how are you thinking about could there be something that puts pricing pressure on the MS market -- and what could trigger it?

And how are you thinking about maybe de-risking the Company from such an event?

None of us think of it as a near term event, but it's something that could happen over the long term.

And then just help us think about the longer-term strategy of the Company and your thoughts on price.

Thanks, Robyn.

This is George.

I'll start with that, and other people can chime in.

I think we're feeling good about the MS business as it exists today.

We're going right.

But if you look at our pipeline, you'll see that many of the things we're working on are not in MS.

We think LINGO, actually, could be a transformative event in the treatment of MS. And we are not working, beyond ZINBRYTA, on novel, let's say, additional drugs that would down-regulate the immune system.

I think there are enough of those on the market.

There are more coming.

For many MS patients, those don't stop the progression.

They slow the progression, but they don't stop the progression.

And so we believe things like LINGO actually are the types of compounds that could actually transform that market and give it additional vibrancy as we move out through the 2020s.

That being said, if you look at what we're emphasizing now and what we have in Phase 3, it's nusinersen for SMA; it's aducanumab for Alzheimer's; it's raxatrigine for neuropathic pain; it's amiselimod for IBD and Crohn's disease.

So we have deliberately brought in a series of compounds and are conducting late-stage trials in things that are outside of MS, partially for the reason you just outlined.

Can you talk on price, anything that can trigger price compression in the marketplace?

We don't see anything in the near term.

No.

As you move out into the 2020s certainly could be, but don't see anything near term.

Your next question comes from the line of Geoff Meacham from Barclays.

Your line is open.

Thanks for taking the question.

A couple commercial ones.

In the context of your DTC campaign, I was curious if you have any data on retreatment of patients who went on TECFIDERA right at the launch.

And then just with respect to -- a related question -- first-quarter trends or even fourth-quarter, any impact thus far from generic Copaxone on the interferon market, if you could share.

Thanks.

Geoff, I'll try to address that.

Not a lot of data on retreatment.

We have plenty of data, but I can't off the top of my head think of anything as it relates to that.

With respect to generic Cop, the data would suggest it's a pretty small percentage at this point in time.

And the data would suggest that it very much is just impacting Copaxone.

So that's how we see it anecdotally, as well as how the data from a market share and a patient trend suggests.

Your next question comes from the line of Brian Abrahams from Jefferies.

Your line is open.

Hello.

Thanks for taking my question.

A question for Michel, if I may.

First of all, congratulations on the new position.

I know it's very early days; but I'm curious if you could maybe talk broadly about your objectives coming into Biogen, areas where you see the potential to have the most impact on the commercial business under your leadership.

And perhaps more specifically, how you're thinking about potentially reaccelerating growth in MS and positioning for potential ocrelizumab entry while still balancing the Company's focus on achieving cost savings.

Thanks, Brian.

Brian, this is Paul.

We had Michel prepared for wholesale or inventory questions.

(laughter) Michel?

Thanks for the question.

Good morning, everybody.

This is Michel Vounatsos.

Week one at Biogen -- so as you can imagine, I am more on the learning and listening mode.

And it's far too early for me to assess the strategy.

I will be focusing a lot of time on the key geographies, obviously, and the key customers to best understand and the key franchises.

So I hope that in the near future I'll be in a better position to assess the next steps.

What I can tell you is that I'm extremely encouraged and honored to be a part of this team and looking forward to engaging with all of you in the near future.

Thanks for your understanding.

Your next question comes from the line of Jim Birchenough from Wells Fargo Securities.

Your line is open.

Hello.

Maybe a question on the pipeline and some help in assessing the risk-adjusted value of nusinersen.

On the risk side of it, when you look at the data we saw at AAN and that we've seen over the last few years, how do you get comfortable with the comparison with historical controls?

And then on the opportunity, perhaps you could speak to how you view that opportunity in SMA between the Type 1 and then the Type 2 and 3 patients.

Thanks.

The comparison with historical controls is always a little bit dangerous to do because you have to choose cohorts and you try to match them to your patients.

But the standard of practice changes over time, so these patients might be getting better over time just by the clinical practice improving.

On the other hand, when you start to see lack of events of the type that was shown at AAN since December of 2014, no new events.

That's a pretty striking difference.

And these are hard end points, like time to tracheostomy or ventilation and time to death.

It's hard for me to see how that kind of thing could be happening due to simply improving medical care.

So I think we're getting more and more encouraged.

But I would note that we have these two well-controlled trials, one in infant onset SMA and one in childhood onset SMA.

And that to me is the definitive data set that we're going to be looking at.

And in terms of the opportunities in infant and childhood, I think they're both big opportunities.

And I look forward to being able to help patients in both categories.

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

Your line is open.

Good morning.

Thank you for taking my question.

I actually wanted to follow up on nusinersen.

George, in your scripted comments, when you talked about doing whatever you can to minimize the time to Phase 3 data for the product, is there anything specific that can actually be done to shorten the time line, given that enrollment is complete for one of the trials and close to for the other?

Is there anything else you're referring to?

At this time, let me just say that we are cognizant of the need to get this drug to patients as soon as we can, if it works.

So the first part of that is being confident that it works.

And as Al said, we're going to need to see data from the control trials in order to make that case to the agencies certainly, and then for us to be absolutely certain as well.

We want to get there as quickly as we can.

And once we have those data, we absolutely want to minimize the time until these kids have access to it -- again, if it works.

And these are especially the Type 1 kids who don't have a lot of time.

There are a lot of kids out there today who desperately need something, so we're trying to shorten that time frame.

But I don't want to get into any of the specifics of how we're doing that.

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

Your line is open.

Hello.

Thanks for taking the question.

Just on the LINGO MS data coming in mid year, I know you are looking at a range of end points here, including disability and cognition.

I think disability is pretty easy for all of us to benchmark, as there's a lot of data there.

But on the cognition side, I know you're using this PASAT-3 scale.

Anything you can do there just to help frame for us in terms of what would be a meaningful outcome on that measurement?

Thank you.

Yes.

We've had a lot of experience with PASAT.

We've been using it in MS trials for about 20 years now.

One of the things we know is there's a practice effect.

So I expect to see some improvement on the score even in untreated patients, just because of the practice effect.

What I'm hoping to see with anti-LINGO, and I don't know whether we will or not, is that there will be an even better learning effect in the anti-LINGO treated patients.

And it would be great to see a dose response that would make it even more compelling if we saw that.

In terms of what is considered clinically meaningful, that hasn't been established in the world of MS yet.

We have no established precedence on that.

I will say that some compounds have shown some efficacy on this by virtue of preventing new MS lesions, but certainly not in this new era of reparative therapies.

Your next question comes from the line of Ian Somaiya from BMO Capital Markets.

Your line is open.

Thanks.

Just a question for Al.

On aducanumab, I was just hoping to get your thoughts on targeting of Abeta.

Specifically, I think you've implied -- and I think there's plenty of data out there suggesting -- that beta amyloid levels or amyloid beta levels might have actually plateaued by the time a patient shows any signs of mild cognitive impairment.

I was just curious to get your thoughts on the appropriateness of targeting Abeta in patients where plaques have already reached a level effect, and what potentially could be driving the disease in these patients in terms of their progression and whether there's another target that would make more sense.

It's true that when you look at plaque burden, it does tend to plateau already in the prodromal phase and certainly by [the amounts] it's pretty flat.

So what drives the progression beyond that, we believe, is probably tau.

Tau comes on later.

If you look at the imaging studies, tau comes on later.

And there's a lot of data, preclinical data, that shows that Abeta pathology triggers tau pathology.

So we're learning a lot about tau now.

We know that in normal aging, there is some aggregated tau in the medial temporal lobe.

But in patients with Alzheimer's disease, it spreads beyond the medial temporal lobe.

And that spread is probably triggered by Abeta.

So that's the reason why we have some programs in tau.

We have some preclinical, as well as early clinical programs, both antibodies as well as antisense.

In the later stages, we might need to treat for tau, perhaps in combination with the Abeta therapies, because I don't think you want to re-accumulate Abeta once you've removed it.

And your last question comes from the line of Chris Raymond from Raymond James.

Your line is open.

Thanks for letting me slip in here.

Just a question on anti-LINGO.

At AAN, there was some interesting data on clemastine.

That agent seems to have at least some similarity in terms of mechanism to LINGO in terms of impacting oligodendrocyte differentiation at least.

I'm wondering, Al, if you've have any thoughts.

Is there any kind of read-through we should be thinking about with respect to that agent and the results there?

Thanks.

The clemastine came from this micropillar assay that was developed in San Francisco, where they have oligodendrocytes wrapping myelin essentially around tubes.

What they found was that there were a number of antimuscarinic compounds that work, benztropine as well as clemastine.

We've actually tested clemastine in our oligodendrocyte differentiation assay here.

And in our hands, it's less potent than BIIB061, our oral compound that we have in early clinical trials.

And it's also less effective overall in a side-by-side comparison in our hands.

Nevertheless, I did look at the data.

Crossover designs, like the one that they did, are probably not the best approach for looking at disease-modifying therapies because when you switch from clemastine to placebo, I don't expect -- if it is causing myelination, how would the placebo patients look?

They would continue to get the benefit from the clemastine that they had received in the period prior.

Nevertheless, they did show a modest effect on latency of the conduction between the retina and the brain.

And we're keeping a close eye on that.

I think that these are all early-day experiments in reparative therapies.

And I believe we have established one of the best ways of looking at this in our anti-LINGO program, both in acute optic neuritis as well as the MS program.

If there are no further questions, let me thank you for your time this morning; and we'll sign off.

Thanks.

This concludes today's conference call.

You may now disconnect.