Biogen Inc. (BIIB) Q1 2012 Earnings Report, Transcript and Summary

Wendy Gabel - George A. Scangos - Chief Executive Officer and Director Douglas Edward Williams - Executive Vice President of Research and Development Tony Kingsley - Executive Vice President of Global Commercial Operations Paul J. Clancy - Chief Financial Officer and Executive Vice President of Finance Alfred Sandrock - Head of Neurology Research & Development

Robyn Karnauskas - Deutsche Bank AG, Research Division Marshall Urist - Morgan Stanley, Research Division Michael J. Yee - RBC Capital Markets, LLC, Research Division Eric Schmidt - Cowen and Company, LLC, Research Division Mark J. Schoenebaum - ISI Group Inc., Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Ravi Mehrotra - Crédit Suisse AG, Research Division Charles Anthony Butler - Barclays Capital, Research Division Jim Birchenough - BMO Capital Markets U.S. Rachel L. McMinn - BofA Merrill Lynch, Research Division Yaron Werber - Citigroup Inc, Research Division Brian Abrahams - Wells Fargo Securities, LLC, Research Division Matthew Roden - UBS Investment Bank, Research Division Thomas Wei - Jefferies & Company, Inc., Research Division Gene Mack - Mizuho Securities USA Inc., Research Division

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Idec First Quarter 2012 Earnings Conference Call. [Operator Instructions] Ms. Wendy Gabel, Vice President, Investor Relations, you may begin your conference.

Thank you, and welcome to Biogen Idec's First Quarter 2012 Earnings Conference Call. Before we begin, I encourage everyone to go to the Investors section of biogenidec.com to find the press release and related financial tables, including a reconciliation of the non-GAAP financial measures that we'll discuss today. Our GAAP financials are provided in Tables 1 and 2. Table 3 includes a reconciliation of the GAAP to non-GAAP results, which we believe better represents the ongoing economics of our business and reflects how we manage the business internally. We have also posted slides on our website that follow the discussions related to this call. As usual, we'll start with the safe harbor statement. Comments made in this conference call include forward-looking statements that are subject to risks and uncertainties. Words such as believe, expect, may, plan, will and similar expressions are intended to identify such statements. Actual results could differ materially from our expectations, and you should carefully review the risks and uncertainties that are described in our earnings slides, earnings release and in the Risk Factors section of our most recent annual and quarterly reports filed with the SEC. We do not undertake any obligation to publicly update any forward-looking statements. Today on the call, I'm joined by Dr. George Scangos, Chief Executive Officer; Dr. Doug Williams, Executive Vice President of Research and Development; Tony Kingsley, Executive Vice President of Global Commercial Operations; and Paul Clancy, Executive Vice President of Finance and our Chief Financial Officer. We'll also be joined for the Q&A portion of the call by Dr. Al Sandrock, Senior Vice President of Development Sciences and Chief Medical Officer. Now I'll turn the call over to George.

Okay. Thanks, Wendy, and good morning, everyone. By now, I'm sure that most of you had a chance to review our press release for the first quarter of 2012. We reported revenue growth of 7% year-over-year to $1.3 billion and earnings per share of $1.40. While most of our performance measures met or exceeded expectations, the EPS number, of course, is below the external estimates, although it is in line with our internal estimates. While every quarter includes a lot of gives and takes, this quarter was a bit more complicated than usual. The bottom line, though, is that AVONEX orders were below expectations in January and without this factor we would have met the external estimates, even with a significant investment for the future that we made during the quarter. So the question is whether or not there's an underlying issue with the AVONEX business or whether there were isolated factors that contributed to the January results, and the answer is basically good news. We believe that the fundamental demand for AVONEX remains solid and that the January revenues were the result of isolated events, which we'll go into a little later in the call. While we're not satisfied with these events, we're heartened by the fact that AVONEX sales rebounded quickly with both revenues and units on track in February and March. So let me now turn to the many positive aspects of the quarter. Both TYSABRI and RITUXAN delivered double-digit revenue growth in Q1, and TYSABRI was particularly strong with 14% year-over-year growth. TYSABRI net patient adds continued to show strength, as we began to roll out risk stratification based on JC virus antibody status to the neurology community. RITUXAN also had a strong quarter and sales of FAMPYRA in EU were encouraging. All of these aspects, of course, are positive and with AVONEX back on track, we're quite optimistic about the full year. Paul will go into the details, but I just want say here that we believe we're now on track to achieve an EPS this year of greater than $6.15. During the first quarter, we achieved a number of very important product and pipeline milestones. The AVONEX PEN was approved in the U.S. and launched last week, improving AVONEX administration for patients and reinvigorating physician interest. We simultaneously received approval for the titration kit, known as AVOSTARTGRIP, which will help reduce the incidence and severity of flu-like symptoms for new AVONEX patients. We gained FDA approval to include the JC virus antibody status as part of risk stratification for PML in the U.S. TYSABRI label. This change allows the sales force to talk to physicians and health care professionals about all 3 factors of risk stratification, which is a very important step towards realizing the full potential of this therapy. At the American Academy of Neurology meeting last week, our pipeline was the subject of 49 platform presentations and posters, including new data for TYSABRI, BG-12, FAMPYRA, daclizumab, dexpramipexole and Anti-Lingo. We were able to present the full data for CONFIRM, the second registrational trial for BG-12, and highlight the efficacy and safety data for the program. The AAN also provided a platform for us to showcase the AVONEX PEN and titration kit for the U.S. market. We made further progress this quarter ongoing our early-stage pipeline with our acquisition of Stromedix, thereby adding to our pipeline a novel humanized monoclonal antibody for idiopathic pulmonary fibrosis or IPF. IPF is a debilitating and almost uniformly fatal disease in which patients experience progressive difficulty breathing due to scarring of the lung. More than 200,000 patients in the U.S. and Europe have IPF, and there is a high unmet need for better therapies for these patients. Adding to our early-stage pipeline, we entered a collaboration with ISIS earlier this quarter under which our companies will develop and commercialize ISIS anti-sense investigational drug for the treatment of Spinal Muscular Atrophy or SMA. SMA is a genetic neuromuscular disease characterized by muscle atrophy and weakness and it is the most common genetic cause of infant mortality. And of course most notably, we submitted applications for marketing approval of BG-12 in the U.S. and the EU this quarter, ahead of our internal target. And I'd like to thank the BG-12 team and the many people of Biogen Idec who worked many hours to make this happen. Our EU application has been validated by the EMA and is formally under review. As most of you know, a couple of months have passed since we filed the BG-12 NDA with the FDA. All of our interactions with the agency to date, including recent conversations, have led us to believe that our application is on track and will be accepted with standard review. We anticipate a confirmatory letter of acceptance within a couple of weeks. We continue to make progress in our clinical programs as well. Factor VIII, Factor IX and dexpramipexole remain on track for data readouts later this year, and PEGylated Interferon for a readout in the first part of next year. So all in all, a very productive quarter for product and pipeline accomplishments. So let me now turn the call over to Doug Williams, Head of R&D, and I'll come back at the end for a few concluding comments.

Thanks, George. During Q1, we continued to make progress on several aspects of our R&D programs, starting with important advances on the regulatory front. This quarter, the FDA approved the AVONEX PEN, the first intramuscular auto injector, and simultaneously approved AVOSTARTGRIP, a new dose titration regimen. As you know, we submitted BG-12 for marketing approval with the FDA and EMA earlier this year. As George indicated, we believe we are on track for the U.S. review process and expect a confirmatory letter in the coming weeks stating that our NDA has been accepted. In addition the European Medicines Agency, or EMA, has validated Biogen Idec's marketing authorization application for a review of BG-12 in the European Union, and we recently filed for marketing approval of BG-12 in Canada and Switzerland. The NDA filing for BG-12 was the largest Biogen Idec has done to date, and it was the commitment of many dedicated people that made this happen. We continue to move closer to making this potential new oral treatment for MS available for patients. Last week, important data on our neurology franchise were presented at the American Academy of Neurology Annual Meeting, where the strength and quality of our neurology pipeline was demonstrated with 49 company-sponsored platform and poster presentations. We shared comprehensive data for CONFIRM, the second registrational study of BG-12, at 3 platform presentations. Results from CONFIRM showed that BG-12 demonstrated strong efficacy across a variety of measures, including annualized relapse rate, and also met MRI endpoints in a cohort of patients, demonstrating a significant effect on these measures of disease activity. In a platform presentation focused on the safety profile of BG-12 and CONFIRM, both dose regimens of BG-12 showed favorable safety and tolerability profiles, which were consistent with those seen in DEFINE. The incidence of serious infection was slow and balanced across the study groups and there were no opportunistic infections. There were no malignancies seen in the BG-12 arms at CONFIRM, while there was one malignancy seen in the placebo and 4 malignancies seen in the Glaterimer Acetate arms of the trial. The most common side effects for BG-12 were flushing and GI events, which decreased substantially after the first month and resulted in a low incidence of discontinuations. Lastly, the poster presentation of a Phase I study of BG-12 in combination with aspirin in healthy volunteers demonstrated that the PK profile of BG-12 was not affected by aspirin and that pretreatment decreased the incidence and severity of BG-12-related flushing without any adverse impact on GI symptoms. Turning to TYSABRI. 14 posters and presentations were presented at this year's AAN meeting, highlighting the high standard of efficacy that TYSABRI has set in the MS market. The initial data from the TYSABRI observational program, or TOP, indicated that patients experienced significantly reduced annualized relapse rates after 4 years of treatment with TYSABRI and the level of disability progression, as measured by EDSS, remains stable over time. Additionally, interim results from the ongoing STRATIFY 2 trial supported what has been seen in other clinical research, where the overall anti-JCV antibody prevalence among MS patients was approximately 50% to 60%. Recall that the primary objective of STRATIFY 2 is to demonstrate, prospectively, that the PML risk in TYSABRI-treated patients who are anti-JCV antibody negative is lower than the PML risk in patients who are anti-JCV antibody positive. An interim analysis conducted with data collected as of February 2012 showed that there was a significantly lower incidence of PML in anti-JCV antibody negative versus positive patients. STRATIFY 2 also showed that anti-JCV antibody prevalence was lower in females than males and increased with age. Treatment with TYSABRI did not appear to affect patients' anti-JCV antibody status. Initial findings from the TYNERGY study, a 12-month trial looking at MS-related fatigue in patients with relapsing-remitting MS, showed that TYSABRI treatment was associated with improved MS-related fatigue. This result was very important, as 50% to 60% of MS patients report fatigue as one of their most disabling symptoms, which can contribute to both cognitive and physical difficulties. We also presented further details of the daclizumab SELECT trial in the scientific program highlights plenary session, as well as the baseline features of the EMPOWER study, our first Phase III clinical trial of dexpramipexole for patients with ALS. Since the design of EMPOWER and the entry criteria are the same as the Phase II trial, we're hopeful that we can replicate the results we saw in that study. Turning now to other important aspects of our MS pipeline. We presented data from 2 Phase I studies of Anti-Lingo monoclonal antibody or BIIB33 that has been shown an animal models to promote remyelination and axon survival. The first Phase I study was a single ascending dose study in healthy volunteers, while the second study was a multiple ascending dose study in patients with relapsing-remitting MS or secondary progressive MS. Primary endpoints for both studies were the incidence of adverse events and serious adverse events, as well as other safety evaluations. Secondary end points for both studies included several measures of serum and CSF levels of BIIB33. Data presented indicated that single and multiple doses of BIIB33 appear to be safe and well tolerated in both healthy subjects and subjects with MS, and that CSF levels achieved were in the predicted range needed for efficacy, based on animal models of demyelination. Importantly, the result supported advancing the development of the agent into Phase II proof of concept studies, which we expect to initiate in the second half of 2012. Moving on to other early-stage compounds in our portfolio, I'm pleased with the progress that we've made expanding our early-stage pipeline this quarter. Through the recent acquisition of Stromedix, we added STX-100, a noble humanized monoclonal antibody that disrupts the TGF-beta signaling pathway, specifically in tissues where fibrotic changes are occurring. We're excited about STX-100 because it exhibited significant activity in preclinical animal models of fibrotic disease and demonstrated an attractive safety and tolerability profile in the Phase I program. Stromedix has also identified a series of pathway-specific biomarkers in the lung to inform dose selection of STX-100 for proof of concept studies. Molecule has potential in several additional fibrotic indications, given the selective mechanism of action and the central role of TGF-beta in fibrosis. We expect to initiate the Phase II study in IPF by midyear. This quarter, we also began dosing patients in the Phase I program for ISIS-SMN for the treatment of Spinal Muscular Atrophy and expect to see results late in 2013. As we move forward into 2012, I look forward to providing you key top line data readouts from 3 pivotal trials in the second half of this year, namely the A-Long study of our long-lasting recombinant Factor VIII in Hemophilia A patients, the B-LONG study of our long-lasting recombinant Factor IX in Hemophelia B patients in the second half of 2012. And finally, the data readout from EMPOWER, the first study of dexpramipexole and ALS is expected in the fourth quarter of this year. With that, I'll now pass the call to Tony Kingsley, our EVP of Global Commercial Operations.

Thank you, Doug. AVONEX continues to show resilience, and we believe our strategy of focusing on frontline execution to drive share gains within the ABC or E class is succeeding, both in the U.S. and internationally. In the U.S., unfavorable channel dynamics drove lower-than-anticipated unit shipments. We'll walk you through the channel dynamics in greater detail shortly. Outside the U.S., we continue to maintain our leading market share position, as the AVONEX PEN continues to drive healthy unit demand in the U.K., Germany, Canada and The Netherlands. Last week, we introduced the AVONEX PEN and AVOSTARTGRIP in the U.S. market. We believe these new innovations will help drive additional interest and allow for greater share of voice within the ABC or E market segments. The benefits of once weekly treatment and the importance of staying on therapy make AVONEX PEN an attractive option for patients. This message is driving share growth in countries where we've launched the PEN, and we believe we are poised to experience similar success in the U.S. market. Moving on to TYSABRI. First quarter global TYSABRI units increased 18%, while revenues to Biogen Idec increased 14% versus prior year. In the U.S., first quarter TYSABRI units grew 9% year-on-year. This is the sixth consecutive quarter where we've delivered unit growth for TYSABRI. Outside of the U.S., TYSABRI units grew 24% in the first quarter versus prior year. We saw positive patient trends during the first quarter, as we added over 1,900 net new patients. Commercially, we continue to drive TYSABRI's strong efficacy message, use the assay to build physician confidence with TYSABRI's benefit risk profile and move the product earlier in the treatment paradigm. Based on the U.S. data, discontinuation rates remain stable quarter-over-quarter and TOUCH forms increased at their highest level since 2008. TOUCH forms for newly diagnosed, previously untreated patients have historically been a low single-digit percentage, but were in the high single-digits this quarter. This provides us confidence our commercial strategy is succeeding. We continue to believe TYSABRI's growth may see periods of lumpiness in net patient adds, but we remain confident in an overall solid growth trajectory. The FAMPYRA launch continues to progress as planned, as the product became commercially available in Canada last month. This innovative therapy is also available in Germany, the U.K., Australia, Denmark, Norway and Iceland. We are actively working with government agencies across Europe to achieve favorable reimbursement. We expect feedback published from IQWIG tomorrow, which is the next step in the German process. At the same time, our team continues to drive awareness in the patient physician communities, which is leading to healthy patient demand. In addition to showcasing our world-class scientific research during AAN last week, the significant foot traffic at our booths during the conference was an indicator of physician interest in our recently introduced innovation, such as AVONEX PEN and titration kit and other commercial products. We are also making significant progress and are on track for successfully executing multiple potential product launches in the coming years. We expect an early 2013 launch for BG-12 and 2 launches in Hemophilia in 2013. As mentioned last quarter, we continue to make investments in product positioning and promotional planning, scientific outreach, shaping our patient support services and supplier chain. These developments, in addition to the strong patient demand in TYSABRI seen during the quarter, demonstrate our commitment and ability to drive longer-term commercial results, and we look forward to building upon this encouraging progress. With that, I will turn the call over to Paul Clancy, our Chief Financial Officer.

Thanks, Tony. Our GAAP diluted earnings per share were $1.25 in the first quarter. The difference between our GAAP and non-GAAP results are outlined in the earnings presentation and include $43 million related to the amortization of acquired intangibles. Our non-GAAP diluted earnings per share were $1.40. We had expected the first quarter to be impacted by the ANGIOMAX royalty stepping down and the $29 million payment to ISIS. So while we need to overcome the shortfall in AVONEX from Q1, we are on track for a full year financial plan. Let me now walk down the P&L. Total revenue for the first quarter grew 7% to $1.3 billion. In the U.S., AVONEX grew 3% to $401 million. Inventory in the channel ended at just over 2.2 weeks of slight decrease compared to the prior quarter. U.S. unit volume was down 8% versus both prior year and last quarter. As George noted, our AVONEX U.S. business was unfavorably impacted by what we believe were temporary channel-related headwinds as ongoing patient metrics remain solid. We believe that a few pharmacy wholesalers, which are downstream from our customers, had very soft purchases in January, presumably the result of advanced purchases in the fourth quarter. There was also a transition from Accredo to CVS Caremark to serve as the federal employee program prescription benefit. With this transition, Caremark built up inventory last quarter for these patients, while Accredo wound down inventory in Q1. While January often experiences some modest channel swings, this year the impact was exaggerated. We estimate that the unfavorable impact in Q1 was approximately $19 million to U.S. AVONEX revenue. We provided the monthly breakdown of AVONEX U.S. units in our earnings slides. As shown, the channel affects were isolated primarily to January and our shipments have normalized over the following months. Internationally, Q1 AVONEX revenue was $261 million, an increase of 2% compared to first quarter 2011. The impact of foreign exchange weakened AVONEX revenue by $8 million, which was offset by a $4 million hedge gain in the quarter. Additionally, AVONEX worldwide revenues were impacted by a voluntary product recall of some material whose expiration date were shorter than stated on the label. This unfavorably impacted AVONEX revenue by approximately $7 million. In certain geographies, we either withdrew product or accounted for the withdrawal without a corresponding resupply, as the execution was in the last week of the quarter. As a result, the temporary impact to worldwide AVONEX revenue in Q1 from the channel dynamics in product referral was approximately $26 million. Moving to TYSABRI. Worldwide end-market sales were $399 million and Biogen Idec reported TYSABRI product revenues of $286 million. In the U.S., TYSABRI revenue to Biogen Idec grew 19% to $87 million. Q1 international TYSABRI revenue was $198 million. The first quarter revenues were impacted by $17 million of deferred revenue in Italy, which is the same issues we highlighted in the fourth quarter 2011 related to the Italian National Medicines agency claim. We hope to have a commission meeting in the coming months with the Italian authorities, and we're working to have resolution in 2012. The impact of foreign exchange for the first quarter softened revenue by $5 million for TYSABRI versus the prior year, which was offset by a $2 million gain from hedging. U.S. RITUXAN sales were $792 million, up 10%, driven by a number of factors, including an increase in the maintenance setting in NHL, continued uptake in CLL in longer treatment duration. Our U.S. profit share was $258 million. Royalties and profit share on sales of rituximab outside the U.S. were $27 million. The result was $285 million of revenue from unconsolidated joint business in Q1, up double-digit. FAMPYRA revenue was $15 million. Royalties were $29 million, an increase of 13% year-over-year, but a decrease of 45% versus the prior quarter. As mentioned, ANGIOMAX royalties reset to a lower royalty rate in Q1, as seen in previous years. As we move to the second half of 2012, we expect to benefit from increased ANGIOMAX royalties. Now turning to the expense lines on the non-GAAP P&L. Q1 cost of goods sold were $133 million or 10% of revenues. This includes approximately $9 million of write-offs and $6 million related to funding the JC virus assay testing. Q1 R&D expense was $354 million or 27% of revenues, which was driven by the $29 million payment to ISIS and the maturing late-stage pipeline. Additionally in Q1, we expensed approximately $26 million for product development and manufacturing campaigns for the Factor VIII in dexpramipexole programs. These expenses were incurred early in the year due to the manufacturing lead times associated with each product. Q1 SG&A expense was $300 million or 23% of revenues, an increase of 23% over last year and 6% sequential quarterly increase. This was driven by increased investment medical affairs and medical education to support the marketed therapies and the potential product launches in 2013. Continuing down the P&L, our collaboration profit sharing line totaled $86 million. Other income and expense was a gain of $15 million in Q1. Included in this amount were $11 million of net gains related to various strategic investments, including a onetime $9 million gain for our prior equity investment in Stromedix. Our Q1 non-GAAP tax rate was 22%. From a year-over-year basis, we benefited from higher orphan drug tax credits and determination of certain intercompany royalties. Also in Q1, we benefited from a onetime determination from the IRS, allowing us to deduct the pharma [ph] fee expense for our RITUXAN business. In the first quarter, our weighted average diluted shares were $242 million. During the quarter, we repurchased approximately 4 million shares for a total cost of $463 million, completing our share stabilization program for 2012. We ended the quarter with $2.7 billion in cash and marketable securities, split approximately 70-30 between the U.S. and outside the U.S. This brings us to our non-GAAP diluted earnings per share, which were $1.40 in the first quarter. Now turning to our updated full year 2012 guidance. We expect full year revenue growth of mid-single-digits at the higher end of our previously communicated range. Our expense targets as a percentage of sales are unchanged from previous guidance, with cost of sales expected to be between 9% and 10% of total revenue, R&D between 24% and 25% of total revenue and SG&A between 22% and 23% of total revenue. We expect our tax expense in 2012 to be between 24% and 25% of pre-tax income. We also plan to execute an additional $500 million share repurchase under our existing share authorization with the objective of returning capital to shareholders. We'll plan to execute this with open market purchases over the balance of 2012. As a result, we anticipate non-GAAP earnings per share results to be above $6.15 and GAAP earnings per share above $5.54. This modest improvement in EPS guidance reflects continued execution of our business plan and delivering the benefits of the new share repurchase program. Now I'll hand over the call to George for his closing comments.

Okay. Thanks, Paul. Because of the successes we had in 2011, we entered 2012 with a lot to do, and we're focused on execution. Our goals for this year: to grow our leadership in multiple sclerosis by growing TYSABRI market share; stabilizing worldwide AVONEX market share; and growing FAMPYRA revenue. And we're on our way to accomplish those goals. We're also appropriately investing to ensure that we're well prepared for the potential launch of BG-12 in MS and Factors VIII and IX in Hemophilia A and B. These activities include a ramp-up of medical and commercial capabilities for both BG-12 and Hemophilia to ensure successful future product launches. We'll continue to advance our Phase III programs for dexpramipexole and PEGylated Interferon, which will read out later this year and early next year, respectively, as well as the trials for Daclizumab and for TYSABRI in secondary progressive MS, which will read out in 2014 and '15, respectively. And of course, we continue to advance and grow our early-stage pipeline to ensure that we're poised for future growth. As we sit here, we're eagerly anticipating the Phase III data readouts later this year for the long-lasting blood factors for Hemophilia and for dexpramipexole, which is a therapy that has the potential to be the first treatment for ALS patients in more than 15 years. We expect to accomplish all of that while at the same time delivering revenue and EPS growth. So we're updating our guidance to reflect our confidence in the business and our plan for the future. Lastly, we look forward to presenting highlights of both our early and late stage R&D programs, as well as our commercial strategy at our upcoming Analyst Day on June 12. We'll provide additional details about this event later this month. And so with that, I will close our remarks and open up the call for questions.

[Operator Instructions] And your first question comes from the line of Robyn Karnauskas from Deutsche Bank.

I just -- first maybe, Paul, if you could comment a little bit on R&D spend, you're doing a lot of Phase III trials right now and next year those might fall behind. How do you see R&D spend going forward next year? Do you think it will fall off a little bit or will be offset by the movement of these Phase II products forward?

Well, yes, no, we talked about this in the past. And while we're just a little bit reticent to give exact targets for next year, I mean certainly, the upward pressure on spending this year is the result of a very fortunate late stage program, set of programs that we have. Our company supports 6 or 7, depending on how you count it, late-stage programs that the bulk of our spending, as I've characterized it in the past, if you look at this on a project basis, the late-stage programs consume over half of the R&D expenses. When we spin a post pivotal trial and certainly the spinning doesn't go away, we're seeing that this year with BG-12 while patients have moved out of the trial, we continue to have spending on BG-12 for the extension study. We continue to have spending for a product as you move into safety. But it does decline on a project-by-project basis. So I think that we don't have the upward pressure on R&D spending as we go into 2013 that we're seeing now. As I also noted, for Q1, we had some spending for DAC on manufacturing campaigns, as well as the blood factors. Those are at risk. Those are things that we, nevertheless, feel important to do. So if these products do get to the marketplace that we're getting to the marketplace with the most, the adequate product supply, obviously, in good kind of product presentations, which are complex kind of for both of those programs. And then obviously in the first quarter, we had the $29 million payment to ISIS. So I think that's kind of directionally where we see it going as we move into 2013. And then I think the other key factor, obviously, is the range of business development activity, which to date has really been focused on building the early-stage pipeline which, by and large, consumes a far more manageable amount of spending.

Your next question comes from the line of Marshall Urist from Morgan Stanley.

So just wanted to get a few more thoughts on TYSABRI. We did see the net patient adds pick up this quarter. It'd be great to get your thoughts, Tony, on how the assay's rolling out, what you've been able to accomplish so far there, and how you see that playing out over the balance of the year for TYSABRI volumes.

So I think we feel good about the trajectory. As we said, country-by-country, month-by-month, quarter-by-quarter, you may have some lumpiness in the way patients get added. But overall that's on a positive trajectory, both in the U.S. and externally. As I said discontinuations in the U.S. have remained stable quarter-over-quarter. I think the key thing is we are seeing increased demand. We're seeing nice increases in the U.S. and TOUCH forms and in demand outside the U.S. And I think that's based on increasing physician confidence, given the risk stratification, increasing interest in patients on and we do see evidence of moving patients to TYSABRI sooner, earlier switches to get the benefit of the efficacy. So I think we're going to continue to see more of that as we go through the course of the year and we feel very good about the trajectory.

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

So disclosed in the 10-K was some commentary about BG-12 new potential patent extensions. Can you just sort of walk through base case for your patents on BG-12 and then what you're filing and how you see that extension play out as noted in the 10-K?

Yes, Michael, this is Paul. The base case is -- really needs to be framed out U.S. versus Rest of World. In the United States, we have patents that take us late into this decade, 2019. And we are -- our planning assumption is some extension with respect to kind of a Hatch-Waxman extension. Outside the United States, we feel good that data exclusivity will protect us and the planning assumption we're using outside the United States is 8 years plus 2. So that almost lines the product up on the North Atlantic basis in a very similar time period. We're working hard, but really don't have any specifics to share with respect to everything we can do to extend that. But certainly, nothing to report at this point in time.

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

A question for, probably, Paul on AVONEX. I see on Slide 24 you're reporting the unit shipments. I'm just wondering if, for the price increases, I guess one in December and one in early March, has any impact on inventory fluctuations. And then sort of Part B of that question, what percent of the price increases are actually being realized these days?

Yes, good questions, Eric. We don't typically kind of put out Page 24. But we thought it was important to put that level of detail out because the concern and the question on AVONEX in January. As you can see, and this is units, as you can see, January kind of came down. That happens occasionally, but it was certainly exaggerated in 2012. We think it's probably owing to what you alluded to in that there were advanced purchases downstream from our customers in the fourth quarter or potentially even earlier. I don't think the March impacted any at all impacts that was very much associated with the PEN getting approved in a very similar time period.

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

Number one, Celgene on their earnings call talked about an inventory work down in the U.S. in the 1Q, driven largely by the merger of the 2 major PBMs. And I appreciated your detailed comments. It wasn't entirely clear to me, it may have just been me, it wasn't entirely clear to me if you also saw impact from that particular merger. So I was wondering if you can comment on that, Paul. And then, maybe for George, the $500 million share repurchase program you announced today, that sounds great. But you're sitting on $2.7 billion of cash. And so why not do more? Especially ahead of the BG-12 launch and data, things that look like certainly they could inflect the stock price again. Certainly from the outside, it looks like you might be accreting cash to do something a little bit more dramatic. And I was wondering if you could talk me off the ledge.

Stay on the ledge, Mark, first of all. The inventory that was noted last week by one of our peer -- I think many of us probably have a similar broad dynamics but the specifics are different. We did not experience, due to the consolidation of PBMs, that issue. The doughnut hole issue was a minor issue as well for us. Our specific issues were what we believe is the 2 that were noted in terms of downstream purchases and then this CVS and Accredo kind of owing to the federal employees. George, you want to?

Yes. Look, I don't think you should interpret anything based on our $500 million stock buyback. We are doing a $500 million stock buyback. That's not to say that's the only stock buyback we will do. It's what we are prepared to talk about today. And we have really nothing to add to our comments here. We'll continue to use our cash for stock buybacks, for what Paul has termed tuck-in acquisitions. So I think no major deviations from what we said in the past. So I think you can get off your ledge, and not by jumping.

Your next question comes from the line of Geoff Meacham from JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: A question for you on TYSABRI unit growth in the U.S. When you look back the past couple of quarters, I think the past 3, it's grown about 0% or 1% sequentially. And so my question is, aside from the JCV assays or something unique about the U.S. market for TYSABRI, and then in terms of a benefit from price increase, maybe remind us of the gross, the net and how much that's changed over the past few quarters?

Thanks, Geoff. It's Tony. So I think the U.S. story is pretty straightforward in that risk stratification has gotten us back on the efficacy message, to be honest with you. And so what we're seeing is nice, healthy increases in patient demand in addition to patients over time. And I think that's driving the -- I think that's driving the unit growth. I don't think it's a lot more complicated than that from a sort of how you model it out standpoint. From a pricing standpoint, the last TYSABRI price, I think, was increased slightly by A-LONG at the end of the year. That's typically been a end of year or midyear kind of time frame. We have managed to capture the benefit of the price increases that have happened over the last couple of years. The issue, of course, is at the customer level, because of ASP plus 6 dynamics. We need to make sure that our customers are continuing to have attractive or not unattractive economics, and there's always a little bit of disruption quarter-to-quarter as you shift over that time frame.

Your next question comes from the line of Ravi Mehrotra from Crédit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: Thanks for taking my question, it's for George. As we move into 2013 and think about your BG-12 ramp up and launch, should we think about the SG&A costs for that as incremental, or are they cost reallocation? Apparently you have an established MS franchise.

I think it's a mix, right? There are certainly customer facing people that we'll add. We want to make sure that we don't take the -- our foot off the accelerator for AVONEX or for TYSABRI, both of which we'll continue to be very aggressive about. And at the same time we need to introduce BG-12, and that simply requires more customer facing people. At the same time, we have a lot of infrastructure, as you said, on which we can piggyback. So there will be some additional costs. But certainly, not as many additional costs as we would have if we weren't already in the MS space.

Your next question comes from the line of Tony Butler from Barclays Capital.

Paul, you've explained AVONEX U.S. very well. The question I have, though, is internationally on the $7 million that's due to a product recall. What prevents that for not necessarily occurring again in the future? Then, is this just simply one country or one area where the expiry did occur and more of a why could that not be larger in the future? And along the same lines, could you also just elaborate a little more about your expectation for international demand? Is it just going to weaken or will it be relatively flat?

Good question. George and I are going to take this one, Tony.

Yes, let me start out with the expiry -- expired material. Look, the issue had to do with how a small number of lots were stored for a period of time last year. And although at that time we felt that it was fine, those storage conditions led to shorter dating for some of the product and we pulled that back from the market and replaced it with other material. We know the cost. It was an isolated event. It's material that we've made both before and after is fine. And so we are not concerned that this is an ongoing problem. This is a onetime event limited to a specific set of lots. So I think that answers part of the question, and I'll turn the other part over to Paul.

Yes, so I think, Tony, you're kind of asking about international demand from an MS broadly, at least that's how I'll try to address it. What we have seen for a number of years is kind of U.S. kind of category, kind of in the low single-digits and outside the United States, being 5% or 6% or 7% above that. So high single-digit growth from a total MS perspective. I would expect that we'll continue to see that in the near term, and it's very traditional where we're seeing kind of Europe growth a little bit slower, but other parts of the world being accretive with respect to growth perspective. And then fundamentally, I mean certainly, there is a thesis that we believe that BG-12 has the potential to expand the market broadly, both in the United States as well as rest of world, just kind of fundamentally innovation bringing some quitters, if you will, some patients that aren't on therapy back into the marketplace. I don't want to exaggerate that point, but I do think that that's certainly a strong tailwind for the business as we move into 2013.

Your next question comes from the line of Jim Birchenough from BMO Capital.

Just still wanted to dig in to the comment on lumpiness on TYSABRI, it suggests alternating tailwinds and headwinds. Are you seeing anything specific in terms of headwinds ahead that might be predictive of lumpiness or the wrong direction in the next quarter? And then specifically, just on the dynamics around the JC virus cast. Could you maybe describe the proportion of patients that are on TYSABRI that are negative versus positive, have we got most of the patients who are positive off the drug? And is there any [indiscernible] of patients coming off that might be candidates for discontinuation?

Yes, thanks, it's Tony. Thank you for the question. So no, we don't see any particular -- when I talk about lumpiness, if you look at country-by-country, month-by-month, as the assay has rolled out, people got tested, we've generated more demand, in some cases you've had more -- it can be a little lumpy month-to-month. We've just seen that over the time frame. But we feel collectively, when you add those all together, the pattern looks good, and we feel like we're on the right trajectory. So no particular headwinds, just always to caution it on a short-term basis. The exact dynamics in the patients can go up and down a little bit. But we see, as you saw in the unit growth numbers and in the overall patient growth numbers, we feel very good on that front. In terms of testing dynamics no, all positives have not, by any means, come off. I think we're very early days in that cycle. We've actually seen the majority of positives continue to stay on the product. The long-term discontinuation for that group, I think, is an open question. We think we will lose more positives over time. But today, it's been actually quite sticky with the majority of positives staying on.

Your next question comes from the line of Rachel McMinn from Bank of America Merrill Lynch.

Just on BG-12, curious what you're going to do with the aspirin results and how we should be thinking about just your positioning on the tolerability profile we see in the initial trends in GI and flushing affects, whether you'll be able to go out with a message, with data of how to manage that better? And then I don't think you commented, but on this expectation for standard versus priority review, your timeline suggests that you are planning for a standard review, but would you be prepared to go forward with -- if you got priority review to launch the product this year?

Yes, this is George. Maybe I can take that question. Look, the aspirin study was an interesting study. I think it showed some very encouraging results, indicated that the flushing can be dealt with, with aspirin. That was not a label-enabling study. I don't think we expect to be -- have that on the label and be promoting on it. But it's an important piece of information, I think, for community to know. In terms -- what was the second part of the question, was standard versus priority review. Let me say, all of the indications we've had and based on interactions with the FDA indicate we will have a standard review. If we are surprised and we get a priority review, we certainly will be ready to move forward on that basis, but we're not expecting that.

Your next question comes from the line of Yaron Werber from Citigroup.

I have 2 questions. Just help us understand a little bit with TYSABRI, the $17 million in deferred revs related to the Italian subsidiary, is that something that once it's resolved you will re-book that as a revenue that's going to hit the revenue line? Or is that going to be more of a balance sheet issue? And then second, just, Paul, relating to AVONEX inventory. I mean, it sounds like there are kind of 2 things going on. One is sort of inventories not at the direct wholesalers, but sort of at specialty pharmacy. And then there was the $7 million withdrawal related to the products recall. Do you have a sense as to where inventories at sort of at that channel is going to be going forward? Is that going to be stable, or is there going to be some more fluctuations into Q2?

Yes, thank you, Yaron. Yes, so look, the accounting -- deferred revenue is just that. If it gets resolved and back to the price per unit that we agreed with the original 2006 claim, that will come back to the P&L. But I just want to caution you on this, there's lots of different scenarios of how it gets resolved. We've tried to describe that in fairly great detail in our 10-K filing. We'll kind of update that in the 10-Q. Nothing really meaningfully in terms of an update. But if it got resolved to, with respect to a favorable, that would be certainly the deferred revenue would come to the P&L at the quarter that it got resolved. In addition, the Q4 deferral is in the same vein. With respect to AVONEX, the AVONEX inventory, it's exactly how you referred to. We have a very good pulse on the inventory levels with our customers in the United States. In fact, we have contractual relationships where they exchange, electronically exchange data with us in order for us to supply and in order for us to know those inventory levels. And those are monitored very, very tightly. And look, the inventory situation in January or the first quarter, while it was meaningful and we wanted to point it out, I do want to frame it out that it is less than a one-week of inventory in the channel. So it's just, I want to just kind of frame it up. But it is exactly what you said, is that downstream from those, the specialty pharmacies or the retail pharmacies for that matter, could have increased their inventory levels. We don't think that, that is a long-term thing. I mean, it's just, but it did kind of impact us for the quarter, and we're going to continue to work hard on that.

Your next question comes from the line of Brian Abrahams from Wells Fargo Securities.

I know it's early days. But I was wondering if you might be able to comment on the extent to which you may be starting to see TYSABRI capture any share potentially lost by Gilenya since some of those additional safety concerns emerged for that drug and the monitoring requirements were updated there? And just wondering if there's anything with respect to commercial strategy you might be able to do to enable you to further capitalize on that?

Thanks, Brian. It's Tony. So I think it's early days. We have seen strength in TYSABRI overall and we've seen some strength relative to Gilenya, it's hard to put a number specifically on in the recent period. The article [indiscernible] review really just came out only a couple of weeks ago. We'll compete, so it does short term. I think if there is some hesitance to add as many new patients to Gilenya, which is what the impact of that may be, I think we're there with both AVONEX and BG-12 -- sorry, AVONEX and TYSABRI as great alternatives for that. So I think it's not as specific sort of targeting that opportunity so much as executing the strategy we have placed very well against that patient.

Your next question comes from the line of Matthew Roden from UBS.

I just want to circle back, Paul, you made a comment that your belief is that the BG-12 launch will result in a larger market size here in multiple sclerosis. But if you look at the 2013 consensus for BG-12 sales, it's about $360 million which is a good bit below what Gilenya did in its first 12 months of sales. So I guess, for Tony or Doug or whoever wants to take this, when you look at the Gilenya and BG-12 profiles, would you expect a similar or different launch in terms of capturing switches, new patient starts, motivating quitters to come on the therapy?

Yes, thanks. It's Tony. Let me take that. I think, given the profile as it's shaping up for BG-12, we are optimistic and believe that we should outperform Gilenya in terms of patient acquisition over the first 12 months. The logic for that is, again, as the profile appears to be shaping up but mostly where the label comes out, it lacks some of the upfront, logistical complexity and monitoring appears at will, which would be a relative advantage. We have existing relationships with a lot of customers and we think that based on a -- and last week there's certainly a lot of interest in the market. So from a patient acquisition standpoint, we've certainly set the goal commercially to exceed what Gilenya has done in the first 12 months.

Your next question comes from the line of Thomas Wei from Jefferies. Thomas Wei - Jefferies & Company, Inc., Research Division: Maybe just to follow up on the last question, could you help us understand your most recent research on how large the pull of these quitters are, both in the U.S. and Europe? And then just separately, how long does it take to do a manufacturing run of dexpramipexole?

Tom, this is Paul. So look, I don't think we have very precise data on the untreated and -- or the treated but unsatisfied quitter population on the sideline. Our estimate has always been about 100,000 patients in the United States. And probably, a little bit smaller amount of patients outside the United States. But that's a very -- I mean, if you think about that, that's a very sizable number on what is currently in the magnitude of 640,000 to 650,000 treated patients on disease modifying therapies. Certainly, all of those won't come back to therapy simply for a safer oral, but there's certainly a big number of those. And the second part was with respect to the DAC. Let me give you a little bit more flavor on both of those, and I'm probably getting out of my league here a little bit. But Factor VIII, it just takes a number of -- a long lead time to really, to get to manufacturing campaigns done. And we're doing some product development work, important product development work, such that the product presentations that we bring to the market and that it gets right down to kind of viables and all that type of stuff in kind of devices is highly competitive, vis-à-vis, the incumbents in the marketplace. And DAC is simply a matter of a little bit of a complicated API that we wanted to make sure that we're kind of well ahead of that. Obviously, DAC is the kind of meaningfully at risk spending that we're doing. But given this patient population, the high unmet need, we felt that it was important to put that average month spending to work.

And just to follow up on that. I mean, we're recently operating within time lines where we're producing material at risk, as Paul says. But that material will essentially come off all of the quality testing and be released in time for sort of the aggressive time lines that we would have for approval of either of those products. So we're sort of front-loading, if you will, the manufacturing process. The real time to having product available comes from the release testing that goes on, particularly for dexpramipexole. But the whole goal here is to have product available at the time that we might be able to launch.

And we have time for one more question. Your last question comes from the line of Gene Mack from Mizuho.

A couple on dexpramipexole. First, I saw on those slides, on the data readouts, that there's 2 planned data readouts for DAC. And I'm just wondering is it mostly ongoing Phase III and if one is a long-term follow-up. And then from the Phase II trial, are any of those patients still being followed currently? And then are there any plans for presenting that data if those patients are still being followed? And then just the last thing I was wondering is are there any ongoing efficacy studies right now or do you plan to do any ongoing efficacy studies at higher doses for DAC? So it's just the 2 data readouts that you have on the slides, the patients from the Phase II, if any of those are still being followed and will you present that, and then anything on the higher doses?

So Al and I will take this. This is Doug. In terms of the timing of top line data, we're still expecting fourth quarter this year. So that date has not changed. I know that there was a statement made at AAN about perhaps December, perhaps January and maybe that's where some of the confusion is coming in. But top line data for the EMPOWER study is expected from us in the fourth quarter of this year. And then as far as following patients from the Phase II, I'll let Al handle that one.

So there is a second star on dexpramipexole out of 2014, and that's that there is a plan to do a second study if we need to. And in that study, we are thinking about potentially incorporating a higher dose, and we're evaluating that potential now. And the safety extension study does go on from the Phase II. We're not reporting any results from that yet, but we plan to report that at a future scientific meeting.

Thanks, everyone. That was our last call. Thanks for participating, and you may disconnect.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.