Biogen Inc (BIIB) 2012 Q4 法說會逐字稿

Good morning. My name is Matthew and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Idec fourth-quarter and year-end 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

Thank you. Claudine Prowse, you may begin your conference.

Thank you. And welcome to Biogen Idec's fourth-quarter 2012 earnings conference call. We issued a press release this morning providing earnings results for the quarter and full year 2012. The press release and related financial tables are available on our website under the investor section, as are the slides that follow today's call.

I would like to point out that we will be making forward-looking statements which are based on our current expectations. These statements are subject to certain risks and uncertainties, and actual results may vary from our expectations. I encourage everyone to consult our SEC filings for additional detail.

On today's call I'm joined by our Chief Executive Officer, Dr. George Scangos; Tony Kingsley, EVP of Global Commercial Operations; Dr. Doug Williams, EVP of Research & Development; and our EVP of Finance and Chief Financial Officer, Paul Clancy. We'll also be joined for the Q&A portion of the call by our Vice President of Medical Affairs, Dr. Kate Dawson. I will now turn the call over to George.

Thanks, Claudine. And thanks to all of you for joining us today. 2012 was a successful and exciting year here at Biogen Idec. We exceeded our financial goals for the year, enjoyed good performance from our products, made substantial progress moving BG-12 in our hemophilia compounds towards hoped-for-approvals and launch. And substantially improved the quality and quantity of our early-stage pipeline. Following my brief opening remarks, Tony Kingsley, Doug Williams and Paul Clancy will review the results and achievements of 2012, and how they position us for 2013. Doug will also review the positive pivotal trial results of PEGylated interferon that we announced last week.

2012 revenue and earnings were strong and exceeded our expectations. Revenue was $5.5 billion. And non-GAAP earnings were $6.53 per share. A strong performance in a year where we invested heavily to advance the late-stage pipeline, and prepared for multiple product launches. As Paul will outline, the good performance, was the result of a mixture of positive and negative factors. But the bottom line is that the products continue to do well.

AVONEX, after years of declining market share, had a turnaround year in 2012. The introduction of the AVONEX PEN, the first intramuscular auto injector, and the AVOSTARTGRIP, a titration kit to help reduce the frequency and severity of flu-like symptoms, together with great execution on the part of our commercial team, gave AVONEX new vibrancy. And that resulted in a turnaround from losing to gaining market share within the ABCRE class.

2012 was also a good year for TYSABRI, as we ended the year with 7,700 more commercial patients on drug than we started. With the availability of the test for JC virus antibodies, TYSABRI's use is shifting into the JCV-negative portion of the population. And it is getting earlier use in that segment.

Our late-stage development program, BG-12 hemophilia programs, and PEGylated interferon continued to march forward in 2012. We continue to be optimistic about BG-12's potential to benefit patients with MS. You may have noticed that there's been some noise from entrenched competitors, which is not surprising. We believe in BG-12's favorable risk/benefit profile, which has been studied in a large clinical program with more than 3,600 MS patients, that includes an ongoing long-term extension study. So, I take the noise to be more a reflection of competitive worries about BG-12 than anything else. I want to point out that the biggest risk to MS patients is inadequate control of their disease. And the introduction of more efficacious products can only be a good thing for patients.

We're very pleased to have received a Notice of Allowance for our dosing regimen patent application in the US. Claiming the administration of 240 milligrams of DMF twice daily for the treatment of MS. That is the dosing regimen currently under review in our NDA. And this patent is expected to be listed in the FDA's orange book, and provide patent protection for our BG-12 product until 2028. We believe BG-12 represents a meaningful advance for the MS community. And our focus is on bringing this important therapy to patients as quickly as possible.

We're also working toward the potential registration for our hemophilia compounds, Recombinant Factors VIII and IX. Based on the data that we announced from our Phase 3, trials, we believe both products have the potential to offer longer lasting protection from bleeding, while meaningfully reducing treatment burden. If approved, we believe these products will represent the first major treatment advances in hemophilia A and B since recombinant clotting factors were introduced in the '90s.

Third, one of our goals was to build up the early- and mid-stage pipeline. We continue to focus on areas where we think we have a competitive advantage -- neurodegenerative, immunological, and hematological diseases where there is still a high unmet need and where the biology is well understood. Our continued work in these areas better positions our mid-stage pipeline to reach development milestones in the next few years.

In summary, 2012 was a very productive year for Biogen Idec. And I'll now turn the call over to Tony Kingsley to discuss in more detail our commercial results.

Thank you, George. Our core MS franchise continues to perform well, with our fourth-quarter MS revenues increasing 8% year-over-year, while full-year MS revenues grew 9% versus the prior year. AVONEX continues to perform well, gaining global market share in 2012 within the ABCRE injectable class. And maintaining a strong front-line position in MS. We believe this continues to be driven by two things. Market uptake of the AVONEX PEN, which brings real convenience advantages to patients, and strong commercial execution in a promotionally-sensitive segment of the market.

In the US, despite new competition entering the MS market, we ended the year with more US AVONEX patients on therapy than we started, providing evidence that our commercial strategy is succeeding. Outside of the US, AVONEX remains the leading MS therapy, as we continue to increase our leading market share position. Unit growth in these markets was strong.

Now moving to TYSABRI. Patient growth was solid during the fourth quarter as we added another 1,500 new commercial patients. And for the year, we added approximately 7,700 commercial patients in 2012. TYSABRI's solid growth trajectory continues to be driven by its powerful efficacy. We continue to advance the science and understanding and stratifying TYSABRI's benefit/risk profile, and build physician confidence in the therapy. As a result, TYSABRI continues to gain market share in the global MS space. We saw continued evidence of earlier adoption in the JCV-negative patient population throughout the year, with growing JCV testing volumes. And now the majority of patients who are starting TYSABRI treatment are JCV-negative. Leading to what we believe will be longer-term retention rates over time.

Now moving to our anticipated 2013 product launches. First, as some of you may already be aware, we now have a brand name for BG-12, TECFIDERA. In the US, we are fully ready for commercial launch of TECFIDERA, and continue to plan to an expected late March FDA approval. Our brand strategy is defined, we have a robust promotional plan in place, and we are appropriately resourced. Additional field resources are already in place. And we will augment with significant promotional and program spend to support the anticipated launch beginning in Q2.

Outside the US, we are planning toward an expected EMA approval in the first half of 2013. And expect the primary launches this year to occur in Germany and Canada with a cadence of launches in other countries stretching into 2014. In international launch markets, we already have key marketing and market access resources in place to support TECFIDERA. And we have a clearly-defined hiring schedule to add field resources several months in front of each country's launch. While we obviously do not have a TECFIDERA label yet, we continue to believe the data suggests a product profile that will be very appealing to a broad set of physicians and patients. And we continue to see high market anticipation.

We are realistic that the market is sticky, with many patients well controlled on existing therapies. And that as the third oral to market, we have our work cut out for us. With that said, we are very excited. We will set very ambitious goals for ourselves, resource the launch aggressively, and focus on strong execution, as we have done with our other products to drive success.

While the TECFIDERA launch is of primary importance to us, our broader objective is to grow our total franchise in MS. And we believe we are well positioned to do just that. We have a potential leader in the three market segments. AVONEX in the injectable class, or ABCRE. TYSABRI in the high efficacy segment. And TECFIDERA in the emerging oral segment. With something like 30% of the patients currently on our products today, we see real growth potential across our portfolio. And will focus on maximizing our total patient capture.

In 2013, we also anticipate accelerating our commercial activities for the hemophilia franchise. We have a strong nucleus of commercial leadership in place. And will continue to build out the team, infrastructure and supply chain necessary for successful launches. Assuming end-of-year approvals, we anticipate the majority of our sales force buildout to occur in the middle of the year. Similar to TECFIDERA, we also anticipate making significant investments in promotional and marketing activities that are vital to successful launches. We believe our commercial momentum is solid. We are executing our strategies successfully. And we believe we are well prepared for potential upcoming launches.

With that I'll hand the call over to Doug.

Thanks, Tony. Let me start by thanking and congratulating the R&D and regulatory organizations for all their efforts and success in 2012. It's been a year of significant accomplishments, spanning the entire pipeline, from research to marketed products. In 2012, we expanded the US TYSABRI label to include information about JCV antibody risk stratification. And achieved FDA approval for both the AVONEX PEN and titration kit. We completed an NDA filing for TECFIDERA with FDA and an MAA filing with the EU regulatory authorities ahead of schedule. And have now filed with Canada, Switzerland and Australia for approval of TECFIDERA in relapsing forms of MS.

Our hemophilia team reported on successful Phase 3 clinical studies for Factor IX and Factor VIII with our long-lasting versions of those molecules. These programs are the first true innovation for patients with hemophilia in more than 15 years. We reported Phase 3 data from our dexpramipexole study in ALS, which unfortunately was not positive. But generated important baseline data on ALS patient diagnosis and clinical progression, which would be important for designing future trials. And just last week we reported on positive Phase 3 data with peginterferon, which I'll spend more time discussing later. All in all, it's been a remarkable year of progress with our late-stage pipeline.

It's also noteworthy that our early-stage pipeline advanced as well, with enrollment of first patients in our Phase 2a study of STX-100 in IPF, the Phase 2a study of anti-LINGO in acute optic neuritis, and our Phase 2b study of the anti-TWEAK antibody in lupus nephritis. We also began enrolling patients in the Phase 1b/2a multi-dose study of ISIS-SMNRx for spinal muscular atrophy. We made significant changes to our research organization to promote discovery and validation of novel drug targets. And key high profile academic collaborations with the ALS sequencing project, the ALS biology consortium, the hemophilia sequencing program and the human protein-protein interaction map. All of these accomplishments position the Company for near-term launches of multiple products. As well as a steady stream of Phase 3 and Phase 2 proof-of-concept study read-outs over the coming years.

I'd like to highlight a few key program accomplishments, starting with our MS pipeline. I'm pleased to say that we'll have more than 50 abstracts at this year's AAN meeting in San Diego. With the majority highlighting recent developments with our MS franchise. Last week we announced positive top-line data from the Phase 3 registrational study of peginterferon beta-1a, known as ADVANCE, in 1,500 patients with relapsing remitting MS. This trial was conducted under a Special Protocol Assessment with the FDA. Primary end point of the study was annualized relapse rate at one year. And secondary end points included the number of new or newly enlarging T2 hyperintense lesions, the proportion of patients who relapsed in 12 weeks sustained disability progression, as measured by EDSS.

Patients in ADVANCE were dosed subcutaneously either every two or four weeks. The primary end point was met for both dosing regiments of peginterferon with ARO reductions of 36% and 28% for the every two- and four-week dosing regiments, respectively. Secondary end points were also met for both dosing arms, including EDSS at one year. Specifically, the confirmed 12-week reduction in disability progression, as measured by EDSS, was 38% for both dosing groups. This is an important outcome measure, which showed significant results at one year. Whereas most studies assess disability after two years of dosing. Rates of neutralizing antibodies were less than 1% for both regimens. And both dosing groups showed that peginterferon was well-tolerated, with adverse event profiles similar to the known profiles of beta interferons in MS.

With these strong results, we believe that peginterferon has the potential to be a leading therapy within the injectable segment. Peginterferon should reduce the number of injections, which ranges from daily with Copaxone, to weekly or more frequent injections of the current beta interferons, to potentially once every two weeks or once every four weeks with peginterferon. Detailed data for the ADVANCE study will be presented as a platform presentation at the upcoming AAN meeting. We expect to file with the FDA and EMA mid-2013. And we're planning a 2014 potential launch of peginterferon with the subcutaneous auto injector to improve patient convenience.

Earlier this month we and our partner Elan announced regulatory submissions with both the FDA and EMA requesting updates to the TYSABRI labels. The applications requested expanded indications, which, if granted, would include first-line use in relapsing remitting MS patients who have tested negative for antibodies to the JC virus. Both regulatory applications have been validated by the respective agencies and formal review has begun. The identification of anti-JCV antibody status as a risk factor for PML has helped to enable individual benefit/risk assessment for patients with relapsing forms of MS. We've shown that anti-JCV antibody negative patients are at lower risk for developing PML. And the proposed label changes would support the earlier usage of TYSABRI in these patients.

Moving on to our early-stage MS pipeline. We initiated the first Phase 2 trial of anti-LINGO in optic neuritis. This is a placebo-controlled trial of 80 patients with acute optic neuritis, randomized one to one to placebo or anti-LINGO administered IV. The primary outcome measure of this trial is a change of conduction velocity as measured by visual evoke potential at 24 weeks. But will also examine low-contrast visual acuity as a measure of visual improvement. We expect to initiate a second Phase 2 trial of anti-LINGO in relapsing MS during the second half of this year. This is a placebo-controlled dose-ranging Phase 2b study of approximately 400 patients, dosed IV for 12 to 18 months. And assessed for changes in functional status by EDSS, as well as several imaging end points and biomarkers to assess remyelination and neuronal repair. We anticipate data from the acute optic neuritis trial in 2014 and the relapsing MS study in 2015.

Now on to our hemophilia programs. Last year we shared positive news from our registrational studies of both our long-lasting Factors VIII and IX. I'm pleased to announce that we have had abstracts accepted on A-LONG and B-LONG, our registrational studies in hemophilia. And we'll be presenting these at the European Association for Hemophilia and Allied Disorders taking place in Warsaw, Poland from February 6 to 8. We're also sponsoring a symposium at the Congress focused on the ongoing clinical development of Recombinant Factors VIII and IX, with the purpose of increasing our interaction with the hemophilia community. And involving expert clinicians' perspectives on our long-lasting programs.

Our collaboration with Isis Pharmaceuticals, targeting spinal muscular atrophy, also known as SMA, recently completed a Phase 1 single-dose open-label safety and tolerability study. The results showed that intrathecal administration of SMNRx appears to be well tolerated. Patients were assessed for clinical responses post infusion by the modified Hammersmith scoring system and with electrophysiological measures of motor unit function. Details from this study will be shared at the upcoming AAN conference. The next step for this program is the ongoing Phase 1b/2a multiple dose study in SMA patients, which will determine appropriate end points for the Phase 3 pivotal trial and identify any appropriate biomarkers. Our partner, Isis, expects to have top-line data from this study in late 2013 or early 2014.

I'm extremely pleased with the progress that the R&D organization has shown over the past year. I look forward to providing you with further updates on our progress in the coming quarters. With that, I'll now pass the call over to Paul.

Thanks, Doug. Our GAAP diluted earnings per share were $1.23 in the fourth quarter, and $5.76 for the full year. The primary differences between our GAAP and non-GAAP results for the fourth quarter are outlined in the earnings presentation. And include $49 million related to the amortization of acquired intangibles, $4 million in fair value adjustments for contingent consideration, and $2 million related to stock compensation expense. This was partially offset by the tax impact on these items. Our non-GAAP diluted earnings per share in the fourth quarter were $1.40. This includes a discrete tax item which impacted Q4 EPS by approximately $0.12. I'll explain this in more detail in a few minutes.

Let me now walk through the financial results. Total revenue for the fourth quarter grew 7% to $1.4 billion. And grew 9% for the full year to $5.5 billion. Q4 AVONEX worldwide revenue was strong, growing 7% to $753 million. And grew 8% for the year to $2.9 billion. Both Q4 and full-year worldwide unit volume increased 4% versus prior year. In the US, AVONEX grew 11% in Q4 to $467 million. And for the full year US AVONEX revenues increased 10% to $1.8 billion.

Inventory in the channel in the US ended at just over 1.7 weeks, a slight decrease compared to the prior quarter. Internationally, Q4 AVONEX revenue was $286 million, an increase of 1% compared to the fourth quarter of 2011. Foreign exchange weakened AVONEX revenue by $10 million, which was offset by a $3 million hedge gain. For the full year, AVONEX international revenue increased 6% to $1.1 billion. Foreign exchange weakened AVONEX revenue by approximately $69 million. This was offset by a $25 million hedge gain, as compared to a $31 million hedge loss in 2011.

TYSABRI worldwide end market sales were $433 million in the fourth quarter, and $1.6 billion for the year, up 14% and 8%, respectively. Biogen Idec recorded TYSABRI product revenues of $295 million in Q4, and $1.1 billion for the full year. In the US, fourth-quarter TYSABRI product revenue to Biogen Idec grew 20% to $104 million. Full-year TYSABRI product revenue was $383 million to Biogen Idec, an increase of 17% over 2011. Q4 international TYSABRI product revenue was $191 million, and $753 million for the full year. TYSABRI product revenue was negatively impacted by approximately $17 million of deferred revenue in Q4, and $63 million for the full year in our Italian affiliate. The impact of foreign exchange for the full year also detracted $48 million from international TYSABRI revenue versus the prior year, which was offset by a $10 million hedge gain compared to a $6 million hedge loss in 2011.

AMPYRA revenues were $11 million in the fourth quarter, and $57 million for the full year. US RITUXAN sales were $769 million in the fourth quarter, up 7%. For the full year, US RITUXAN sales were $3.1 billion. RITUXAN benefited from continued patient penetration in non-Hodgkin's lymphoma, and adoption in the vasculitis indications. Our profit share and expense reimbursement from that business was $257 million in the fourth quarter, and $1 billion for the full year. Royalties and profit share on sales of rituximab outside the US in Q4 were $24 million, and $105 million for the full year. The result was $281 million of revenue from unconsolidated joint business in Q4, and $1.1 billion for the full year. Royalties were $56 million for the fourth quarter and $161 million for the full year. We also recorded $6 million of corporate partner revenue in the quarter, and $44 million for the full year.

Now turning to the expense lines on the non-GAAP P&L. Q4 cost of goods sold were $134 million, or 9% of revenues. Full-year COGS were $545 million, or 10% of revenues. The increase in COGS in '12 over prior year was primarily driven by higher revenues from our core products, higher costs of the AVONEX PEN, and increased funding related to the JCV assay, nurse training fees and our arrangement with Samsung Biologics. Q4 R&D expense was $344 million or 24% of revenues. Which includes a $30 million up-front payment to Isis for the discovery collaboration and spending related to dexpramipexole. For the full year, R&D expense was $1.3 billion or 24% of revenues.

Q4 SG&A expense was $375 million, or 26% of revenues, an increase of 33% over last year. This was driven by costs associated with promotional planning and sales force deployment for TECFIDERA in the hemophilia therapies as well as an increase in grants. For the full year, SG&A expense was $1.3 billion, or a 21% increase over 2011.

Continuing down the P&L, our collaboration profit sharing line totaled $78 million in expense for the quarter, and $318 million for the year. During the fourth quarter, we also recorded $15 million from DRI, from the sale of our BENLYSTA royalty and related rights. Other income and expense was a loss of $14 million in the fourth quarter.

Our Q4 non-GAAP tax rate was 30.6%. This is an increase versus our normal effective tax rate due to a one-time discrete item in the quarter. Specifically during our year-end audit, we discovered an error in our accounting for the income taxes related to the capitalized interest at our Denmark manufacturing facility. This had accumulated over many years, going back to 2006. We have adjusted this all in the fourth quarter as a cumulative correction for the last six years. And it increased our tax expense by $29 million. This was a non-cash impact which unfavorably impacted Q4 EPS by $0.12.

In the fourth quarter, our weighted average diluted shares were 238 million, flat versus the prior quarter. We ended the quarter with $3.7 billion in cash and marketable securities, of which approximately two-thirds is in the US. This brings us to our non-GAAP diluted earnings per share, which were $1.40 for the fourth quarter, and $6.53 for the full year, up 11% versus 2011.

Now I'd like to provide our full-year 2013 guidance. We expect total revenue growth of approximately 10%. While we usually don't provide product-specific guidance, I would like to characterize how we're thinking about each of the products. Overall, as we've talked, our thesis remains that we'll potentially have leading products in each of the three multiple sclerosis segments -- the ABCR segment, the high-efficacy segment, and the oral segment. We expect the revenue dynamics of our AVONEX business to remain roughly similar to the last year or two. With single-digit unit declines in the US due to the new entrants. And low single-digit increases outside the US. We expect the impact of 2012 pricing actions to carry forward as a positive impact in the US, and a slight negative impact outside the US, roughly offsetting each other. Overall, we expect AVONEX revenue in 2013 to be pretty comparable to 2012. Which is consistent with our goal to gain share within the ABCRE class.

We expect continued growth from TYSABRI, driven by restratification efforts and its high-efficacy profile. Our business plan assumes TECFIDERA is approved in the United States in late March, and shortly thereafter in the EU. Over the multi-year time period, we believe TECFIDERA, given the therapy's profile, can be the leading oral treatment in MS. Let me point out a couple of factors that are included in our TECFIDERA projections for 2013. First, subsequent to last year's PDUFA delay, we adjusted our plans to assume TECFIDERA would be available for patients in the US for only nine months in 2013 versus 12 months. That dropped the highest revenue quarter. Second, due to the normal country reimbursement process outside the US, international revenue comes primarily from Germany in 2013. We expect to see the benefit of the remaining countries begin largely in 2014. Finally, our forecast on dose compliance is cautious for 2013, which I'll l admit we really don't know until we get into launch.

Moving to RITUXAN, we expect our revenue from unconsolidated joint business to be similar year-over-year, as international rituximab royalty declines are offset by modest US profit share increase.

Moving to the expense lines of the P&L. We expect cost of goods sold to be between 8% and 10% of sales. R&D expense is expected to be between 22% and 23% of sales, a decline from 2012. Our R&D expense starts to benefit from the maturation of the late-stage pipeline. And our spending in R&D moves to greater investment in mid- and early-stage development programs. SG&A expense is expected to be approximately 24% to 26% of total revenue, an increase from 2012. We see 2013 as an investment year in SG&A, as we build out the commercial efforts for TECFIDERA, and we execute pre-launch commercial efforts for hemophilia in the US. We do expect to drive SG&A leverage post 2013. We expect our effective tax rate in 2013 to be between 24% and 26% of pretax income. As a result, we anticipate GAAP earnings per share to be between $6.45 and $6.55. And non-GAAP EPS results to be between $7.15 and $7.25.

So we're excited about 2013 in setting the foundation for what we hope will be strong earnings growth over the next number of years, as we hope to launch multiple new products over the course of 2013 and 2014. I'll turn the call over to George for his closing comments.

Okay. Thank you, Paul. This is a remarkable time for Biogen Idec. In 2012 our commercial, regulatory, development, clinical and research teams achieved significant milestones that positioned us for sustained, near- and long-term growth. As I think about 2013, we believe that the underlying drivers of growth continue to look robust. Our current products continue to provide a solid business foundation, and we expect continued performance in 2013.

AVONEX is now gaining market share in the US and internationally within the ABCRE class. As Doug reported, we recently had the results for our peginterferon trial, which showed solid efficacy. We plan to launch peginterferon with a disposable subcutaneous auto injector to improve patient convenience. This potential best-in-class profile should enable us to further expand our share in the ABCRE segment.

We continue to be optimistic about the prospects for TYSABRI. The JC virus antibody test seems to be paying off now, and we think TYSABRI has substantial growth potential. We're entering an era where, subject to FDA approval, we hope to have several new product launches. TECFIDERA, our hemophilia compounds and PEGylated interferon. Behind those is a pipeline of very promising compounds. Next year we'll have a read-out for daclizumab HYP, which has the potential for once-a-month dosing for the treatment of relapsing MS patients. In 2015 we'll have a read-out for TYSABRI in secondary progressive MS. If the data are positive in this indication, it would be a great service for those patients and a new market for TYSABRI. SP-MS patients make up approximately 35% of the total MS population. And then potentially there's a read-out for ISIS-SMNRx into 2016.

Over the next three years, we expect to have proof-of-concept data from multiple compounds, including anti-LINGO for MS, ISIS-SMNRx for SMA, STX-100 for IPF, anti-TWEAK for lupus, Neublastin for neuropathic pain, and BIIB037 for Alzheimer's disease. So it looks like we could have pivotal trial results for at least one new compound each year for the next three. Together with read-outs from our Phase 2 compounds and proof-of-concept data within that same time frame, we believe that the early-stage pipeline is maturing nicely. And could be a major value contributor to the Company as we move forward.

Our next steps are pretty clear. We now drive forward with the same passion and commitment we've demonstrated over the years, to maximize the opportunities ahead of us and bring innovative and sought after therapies to patients globally. We need to continue to drive the performance of our current products. What's important to us is to drive leadership across the entire MS franchise. We believe that with the leading injectable, the leading high-efficacy therapy, and potentially the leading oral compound, we're well positioned to capture more net new patients in each of those segments.

We need to ensure that we go through the registration processes for our new compounds efficiently. And successfully launch each of the late-stage products in the coming years. For the rest of the pipeline, we need to ensure that we get the trials done on time and continue to drive innovation to bring the best science to the Company. And we need to further build the early-stage pipeline to continue to bring important new medicines to patients in areas of high unmet need. And further ensure that we have major value drivers going forward.

So, our future and our success are in our own hands, and that's a nice place to be. Very few companies can tell the story that we can. And that doesn't happen by accident. I'm very proud of the many accomplishments achieved by our Company, and our outlook for 2013. We thank all of the employees who make our achievements possible.

And at this time I will open the call to Q&A.

(Operator Instructions)

Mark Schoenebaum with ISI Group.

Congrats on a great year. As you know, it's our job in the investment community to worry about the unlikely. So, with that in mind, let me ask the following questions, if you don't mind. Could we maybe get your updated thoughts on the potential impact of the PML cases linked to Fumaderm in Germany on your BG-12 regulatory applications? And also, I think there is a recent blog post by Dr. Gold which seemed to suggest that, it seemed at least to suggest, that some BG-12 patients he thought should have their white blood cell counts monitored. So I'd love to get your thoughts on that. And then, finally, what do you expect the FDA and the EMA to do with the BG-12 pre-clinical kidney cancer signal that you disclosed many years ago. I remember you disclosing it many years ago. But which Teva referred to in its recent CP. And then I'll get back in the queue. I'll really appreciate you entertaining my paranoid delusions.

Thanks, Mark. And let me just point out that it's also our job to worry about unlikely events. But let me take those two things one at a time. This is like the guest who won't leave the party, I guess. Anyway, look, let me take the PML stuff first. We talked about this at JPMorgan. So, let's first talk about BG-12. It's been studied in 3,600 patients, including a long-term extension study. Zero cases of PML. No opportunistic infections. Looks great.

With Fumaderm, in 180,000 patient years there have been three cases of PML. And there's one additional case that's been reported in a patient taking formulated fumaric acid esters. So lump those together, you get four cases in 180,000 patient years. So, the first thing to say is that is the normal rate that you would expect to see in a population of patients with an autoimmune disease. There's nothing alarming about that rate. Two of those cases, heavily confounded -- patients taking other drugs, having other risk factors for PML. Two of them, which, I think, are the two patients to which Dr. Gold alludes in his post last week, were lymphopenic for sustained periods of time. Lymphopenia is also known to be a risk factor for PML. So the two cases reported last week are not new cases. They're two of the four cases that are already known. He mentioned that they are going to be published in a major medical journal. That's true. But I'm glad you asked the question because we can make it clear here, those are not new cases, these are the old cases. And the rate's low. That's all there is, I think, to say about that.

Now, on the kidney issue, look, this came from a website that was being constructed for internal use only. Actually, the information on the website were not completely accurate. They were not vetted completely by us, let alone even submitted to any regulatory agencies, let alone approved by any regulatory agencies. And they were largely meant to be place holders for the site so we could substitute the official information and get the site up quickly after approval. The site -- the data -- the site was accessed by Teva. The data were inappropriately used to file their citizens petition that they filed. The data are not new. They are old. We disclosed those data, as you pointed out many years ago. The regulatory agencies have had them for years. For those reasons that we did the renal monitoring during the clinical program. And, as you know, from looking at the Phase 3 data, there were no signs in the renal trial in humans. So we feel very comfortable about the safety profile of BG-12. And about the risk/benefit profile of BG-12. And we are still aiming for an approval at the end of March. And, as I said before, we take these concerns now to be -- I think the noise about them now is largely a question of competitive pressure rather than anything else.

Eric Schmidt with Cowen and Company.

Maybe best for Paul. You laid out a lot of factors on BG-12 for us to think about in terms of how to model the launch. When you look at the analyst models out there, maybe specifically a consensus of about $330 million for the year, are you getting the sense that the Street's thinking is aligned with your own? And if not, where do you think there's a disconnect?

Thanks, Eric. What we're going to try to do is just try to point out the fact that, post the PDUFA delay last year, I think there were a fair amount of models that actually didn't adjust for the fact that it's nine months in the United States as opposed to 12 months. And then I think the other key thing is that compliance for BG-12, we just actually don't know. So we're being a little bit cautious that, looking at twice-a-day drugs as opposed to once-a-day drugs, the benchmark being GILENYA. That there's a good chance that compliance coming out of the gate may be a little bit lower. We're going to be putting in place a lot of programs, pharmacy programs and the like, to make sure over the medium term that patients are taking the therapy appropriately. So, falling short a little bit of exactly answering your question on the number, the spot number, just want to really point that stuff out. It's obviously a range. And I think that we'll know that as we get into it. We are very comfortable with the longer-term projections, which also obviously is a range. But just for this year, just want to try to really point a couple of those factors out.

Geoff Meacham with JPMorgan.

A question on the ADVANCE trial. Obviously the Q2 and Q4 week achieved the end point. But there were some differences between the two on everything but EDSS. So maybe help us with how you see Q4 week playing out commercially versus Q2 or other injectables. And then will there be an efficacy measure going out to two years that possibly you could see a catch-up effect with a month ago? Thanks.

Jeff, it's Tony. Thanks for the question. From a commercial standpoint, our thesis on the injectables class has been that, as other products enter and the efficacy differences get compressed a little bit, it moves to convenience. Both of these are good news from a convenience standpoint. It's early days. And I think we have some work to do to think through the more tactical marketing strategy on two versus four. The good news is they're both good. Disability is obviously encouraging to have, and that can be a differentiator, think particularly with payers who are particularly interested in that. Doug, I don't know if you want to talk about the two-year.

Yes. The two-year data, because of the way the study is designed, the patients who are on placebo roll over to active drug. So what we'll really be looking at there is primarily tolerability-related issues in the second year. You really lose your comparator group, if you will, just based on the way the study is designed. Primarily we'll get some additional tolerability data. We'll obviously be looking at long-term efficacy measures. But have less power to say things just based on the fact that the placebo patients have now been rolled over to active drug.

Okay, thanks.

Yaron Werber with Citi.

Just two questions, guys. One -- and, also congrats on really a spectacular year. One -- and I don't know if you can answer it. Maybe just philosophically, when you look at AUBAGIO, it's around $40,000 per year. And with the recent price increase of GILENYA in the US, it's around $60,000. The question is, BG-12 really has a great profile between the two drugs and can support premium pricing. Certainly at the higher end of GILENYA but then you're probably worried about market access. So just give us a little bit of a sense to how you think about that range. And then any sense of how should we think about the growth in the discounts in this market for the oral drug. And then, just secondly, if you don't mind, for Tony, TYSABRI, how should we think about patient starts from now on, just given the deceleration quarter to quarter? Thank you.

Yaron, it's Tony. On pricing, I think AUBAGIO is $45,000, last I looked. I think you said $40,000. There is a range between that and where GILENYA is today. If you look at where the ABCREs are, they're mostly pretty clustered in that category. We've said before, as we think about the BG-12 pricing strategy, we think it's got a good profile. We're going to do what we can to capture value for that. But we're going to be thoughtful about not creating lots of barriers for us.

Let me touch on TYSABRI. And then Paul can maybe take the gross to net question. We feel good about the pace on new patient starts. It's a little slower in the fourth quarter. If you look, that's not unusual. There is some seasonality in the TYSABRI business. I think in the past we have seen some Q4, particularly around December, is a little softer for patient adds. But we're continuing to see restratification take hold and the benefit/risk profile moving. As I think we've often said, we didn't view risk stratification as a massive inflection since there was a lot of understanding of that through the STRATIFY clinical trial. But it's a nice, steady march of continuing to move physician confidence, and with that we think patient adds. Paul, you want to talk about --?

Yes. Great question Yaron, with respect to gross to net. Clearly, we're talking about the United States. The gross to net -- and a few people have pointed this out -- that it has increased over the last couple of years. So that's always good to be mindful of. For us, and for our category, multiple sclerosis, it's a function of private payer rebates. Which really actually haven't meaningfully increased. And then government rebates which, while it's a relatively lower percentage of the mix for us, it actually plays a factor into the gross to net dynamics. Certainly, that's particularly true for AVONEX, that's true for TYSABRI. That will actually in the early days obviously be less true for BG-12. Because that's more of a function of historical pricing vis-a-vis cost-of-living adjustments, if you will. It's a good thing to be mindful of but I think it's still quite manageable.

Geoff Porges with Bernstein.

I appreciate the transparency. Just a question, Paul, about margins. Your R&D looks like it's coming down next year. You've been around, hovering around 24% the last couple of years. And you've clearly had to go back, or been able to pull back on spending on dex. Can you give us a sense of what the sort of thing you might be looking at from a business development standpoint, given that it looks as though you've got 1 point or 2 of SG&A spend that you could potentially deploy into another late-stage program? Or is that an incorrect assessment?

I'd say the dynamics of 2013 are, Geoff, pretty close to what you point out in terms of, we expect to get a little bit of deleverage in SG&A. Call it 150 to 200 bips of deleverage, as this is a critical year and a very unique year and a great year for Biogen Idec with respect to the bolus of potential launches. R&D, we expect to get to more or less make up those 150 to 200 basis points. And actually that has been all along the thinking, as the maturation of the late-stage programs get through the big spending. As you move late stage and finish your trial, as we've talked about in the past, it's not like the spending disappears. The exception, obviously, is dexpramipexole. We expect just very small amount of spending in 2013. And that is really a big driver on the 2012 to 2013 leverage point. We will continue to look at business development deals in R&D. Our current guidance doesn't include anything real meaningful in that. But we feel that we have an obligation to continue to look at those things. And cover the cost of those if they're very manageable and very small. And that continues just to be real important strategically, to build up the early- and mid-stage pipeline to get a real longer-term, sustainable growth for the Company. And it's essentially part and parcel to what we do here and it's been proven to be pretty darn effective. Anything meaningful on that front we look at on the merits of the molecule, the merits of the deal. Less about what does it do for the quarter to quarter impact on the P&L. And we have to solve that after the fact.

Thanks very much.

Ravi Mehrotra with Credit Suisse.

Two part question on TECFIDERA. Paul, you've mentioned twice now some caution around the b.i.d. dosing compliance. Is there any studies or real world experience which brings you to that cautionary note? And related to that, turning to the GI and flushing side effects, which you flagged openly, can you remind us how you aim to manage that in the early days of launch? And to what you are hoping to get within the label in that regards. And remind us of the studies to support those steps. Thank you.

Let me start with the first part, Ravi. First of all, nice job on the pronunciation of TECFIDERA. Well done. I was practicing it all weekend. Look, GALINYA, as you know, they've reported into the 90 percentages on the compliance. We're looking hard at this. And there's lots of studies of more than a handful of comparable, twice-a-day therapies that actually get closer to 70% compliance. So that's a big -- in the world of revenue and P times Q, that's actually a big swing. And that's a little bit about what we're being cautious of. Obviously, our job is to work hard on that. It's the right thing to do for the business. More importantly, it's the right thing to do for patients. But that gives you a little bit of the swing factor that could play. Doug?

In terms of what we'll have available to help physicians manage patients through, we're really talking about the first month here where both the flushing and the GI tolerability effects seem to manifest themselves. And they tend to self-limit after a month. But we will have patient support services available, to be able to advise and counsel, if you will. As you know, we've done some you studies with aspirin that seem to have a meaningful effect on flushing. Those won't be in the label but we're continuing to do some additional work. Those studies have been published. They've been talked about at some of the major neurology meetings. So that information is obviously out there and available for physicians. And then as far as the GI tolerability, we're also looking at the ability to tighter the dose up, to see whether or not that has a meaningful impact for those few patients who do experience significant GI tolerability effects. We'll have patient information. We won't have anything in the label initially but we're continuing to do studies to be able to understand and better manage that.

Robyn Kamauskas with Deutsche Bank.

In thinking about PEG-AVONEX and the data, you've said that you want to be the market leader amongst interferons. And I'm wondering how you're thinking about peginterferon. Do you think that peginterferon could be the market leader amongst the interferons? And then second question related to that is how do we think about gross margins? You have a lot of new products coming on line. And in particular, even if peginterferon makes it to market, how do we think about margins versus current margins? Thanks.

Robyn, it's Tony. look, we're obviously thinking about interferon as a franchise over time. And we'll think about the value proposition of PEGylated interferon in that context. Again, our theory is convenience is an important differentiator, and an increasingly important differentiator over time. We have a strong value proposition with AVONEX and the PEN today. A subcutaneous, 13 or 26 times per year injectable is very attractive. So you ask could it be the leading interferon. The question I would ask is why couldn't it be the leading injectable. If you look at 13 or 26 times a year, with the kind of data we're talking about relative to 365 times a year, also subcutaneous, it's a pretty powerful value proposition.

And Robyn, I think not too much to report for 2013 on gross margins other than what's in the guidance. Over the longer term -- the gross margins are quite healthy now, as you know -- over the long term we actually think we can creep it north of that modestly. BG-12 is a very good cost of goods sold. We expect over time TYSABRI, with bringing on Denmark that we can move gross margins a little bit more favorable in that dimension. So, I think that that actually over time is a modestly improving story.

Matt Roden with UBS.

Nice quarter and thanks for taking the question. Paul, first, in terms of the above consensus revenue guidance, the past couple years you've been pretty conservative on this line versus what you've actually delivered. And I was wondering if there's anything different in your process this year, as you came up with your 10% year-over-year growth on revenues. And whether or not there were any particular lines, line items, in your forecast that were particularly different than consensus. And then, secondly, for Tony, on PEG-AVONEX, once that is available, can you talk about how your promotion strategy for the interferon strategy will shift. Is it important to switch the current AVONEX users over to PEG-AVONEX? Or is this more about a strategy to compete for new patient starts? Thanks very much.

Yes, thanks, Matt. It's great and probably helpful in terms of clarifying. The consensus is essentially what our plan is for the top line. I think I wouldn't stretch it and to say that we've got a lot of conservatism at all built into that. It assumes a little bit of pricing action in the US, yet modest. It assumes that we'll solve [ayefa] at some point during the impact during the year. That's not the most meaningful assumption that we have. And we certainly are working hard to do that. If we don't, it's still manageable on the bottom line. It doesn't -- we don't have an you assumption in terms of the top line with respect to legislative changes that many of you, and all of us, are watching. Dual eligibles is actually a meaningful impact for us on the AVONEX business. And our top-line outlook assumes very comparable foreign exchange. So I think it's a pretty fair look at what we think the business is. I would not guide at all to stretch that much further at all.

Matt, it's Tony. In terms of the strategy for PEGylated interferon, I'd say TBD. Clearly you'd want to think about capturing new patients with that. We don't have the label, et cetera, yet. That's a ways off. The pace at which you'd think about converting is subject to a lot of different factors. Well controlled patients, do you want to move them off therapy. What data well positions one to be comfortable doing that. There are payer dynamics associated with that. So lots to work out on that front. But, again, from a franchise standpoint, this is good news.

Michael Yee with RBC Capital Markets.

A question for Dr. Dawson or Tony. You guys have launched more MS drugs, obviously, than anyone. But when you look at the launch of TECFIDERA this time around, and you look at the reimbursement, the payer landscape, and different EU pricing bands, are there things today, particularly O-US that are different than a couple years ago? How are you thinking about that, as we model or you model?

Good question, Michael. The couple of macro things that are different is the class is getting more crowded. There have already been more entrants, anticipate more entrants. So payers around the world are obviously focused on the class because there are more things to look at. And the second is, I think Paul's been pretty transparent, the European pricing environment has been very difficult in the last couple of years. And we think there's going to continue to be meaningful pressure on prices in general, as the European economy continues to struggle. So if you think about it, the differentials between US pricing and largely European pricing are getting greater than they have. And both those factors seem to be moving in the direction that would increase those over time.

Rachel McMinn with Bank of America-Merrill Lynch.

I just wanted to clarify, Paul, a couple of things you said. On your AVONEX guidance, should we look to the 7% to 8% sales growth we've seen over the last two years and think about that as an accurate number to go forward? Or did you actually mean that sales would be flat? And then on BG-12, with your comment about Germany, will you be able to launch rapidly after approval? Or is there just a prolonged period where we should be thinking about revenues more weighted towards the back half in Germany for TACFIDERA? Thanks very much.

Rachel, thanks for the clarification. AVONEX we actually think is a pretty comparable year-over-year number. So more flat on a year, from a total revenue perspective. Tony?

Yes, from a launch standpoint, we think mechanically we should be able to launch relatively quickly in Germany. As I think you know, the NOG process, which is the reimbursement process in Germany, allows you free pricing for, I think, the first 12 months. So you can get a market while you are negotiating that, and then you may be subject to some adjustments to that later. But no barriers to keep us from getting on the ground relatively quickly.

Perfect. Thanks.

Terence Flynn with Goldman Sachs.

I was just wondering in terms of PEG-AVONEX, can you make any comments about the tolerability of that drug relative to weekly AVONEX? And then on the patent side, anything else beyond the patent that you mentioned today, that we should think about for BG-12? Thanks.

This is Doug. I'll go ahead and speak to the tolerability issue. I think what we've reported thus far is that tolerability issues are pretty comparable to what's been seen with other interferons. There were some flu-like symptoms that were seen, some injection site reactions. We'll actually be reporting a lot more information at AAN. We're still in the process of doing some of that analysis work to look at things like duration of flu-like symptoms, and don't have that data yet. But what I can say is that discontinuation rates were very low in the study, which would suggest that the flu-like symptoms, even if patients had them, were not an impediment to them staying on the study drug through the conduct of the clinical trial. We feel like we have a molecule that has a very solid efficacy profile. And one that tolerability-wise looks not dissimilar from the existing AVONEX molecule. But we'll have a lot more data for you at the AAN.

On the IT front you can assume there are other things that we are doing. This is obviously a very important franchise for us. We're working on a number of factors. The 480 patent is pending in the EU, as well. So we haven't spoken too much publicly about what else we're doing, so we'll leave that alone for now.

Marshall Urist with Morgan Stanley.

A couple of things. Number one, Paul, just to clarify, I know this has been asked a couple different ways, but just to be absolutely clear on guidance, it sounds like, from what you're saying, if you're guiding to 10% revenue growth on flat AVONEX and flat RITUXAN, then is it, as we all try and back into the TECFIDERA number, then it's basically just TYSABRI, whatever TYSABRI growth, whatever the settlement in Italy is worth incrementally? And then, so nothing else, it sounds like from your comments. It's just those plus TECFIDERA to get to the 10%. And then, second, just as we think about patient flow models, it sounds like you guys are thinking the discontinuation rates early on will be higher than what we saw in Phase 3. And then eventually that should settle or improve as the launch moves on. And then, Paul, just lastly, what are your updated thoughts on accounting also for the BG-12 milestones and royalties? Thanks.

Yes. Let me take the first and third. Probably too much of a shorthand everybody's jumping to already. We actually do think -- actually TYSABRI continues in a growth year. So growth there, as well as ayefa. Our royalty line and corporate partner revenue line actually expands a bit. So I think we're probably being a little bit more cautious, and believe to be more cautious on BG-12 than what --. And that has got nothing to do with the longer-term prospects of what we think about the drug over the long haul. Just the dynamics of the first year launch.

With respect to -- I'll jump to the third part of your question, Marshall -- with respect to the accounting for the BG-12 contingent payments, no change. So that was, we're being very consistent with the way we've treated purchase accounting. That it does not impact the non-GAAP P&L but it certainly is something to be accounted for. It impacts the cash flow statement. They are very meaningful, so certainly want to be very cognizant of them.

Marshall, it's Tony. In terms of the actual real world experience with [discon] rates and compliance, various other things like that, we don't know until we get into the real world. We think we have an idea where that will come out but we're going to monitor it very closely. And, as Paul said, we'll have programs in place to try to address issues that we see on that front. But we'll be all over it as we launch, and tracking it and seeing what we can do to improve issues that come up.

We have no further questions at this time. I'll turn the call back over to our presenters for any closing remarks.

Okay. Thank you all for listening to the call today. I appreciate the questions. And we'll get back to work and hopefully deliver a great 2013. Thanks.

This concludes today's conference call. You may now disconnect.