Biogen Inc. (BIIB) Q3 2012 Earnings Report, Transcript and Summary

Claudine Prowse 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

Eric Schmidt - Cowen and Company, LLC, Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division Mark J. Schoenebaum - ISI Group Inc., Research Division Rachel L. McMinn - BofA Merrill Lynch, Research Division Yaron Werber - Citigroup Inc, Research Division Michael J. Yee - RBC Capital Markets, LLC, Research Division Marshall Urist - Morgan Stanley, Research Division Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division Thomas Wei - Jefferies & Company, Inc., Research Division Charles Anthony Butler - Barclays Capital, Research Division Marko K. Kozul - Leerink Swann LLC, 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 Third Quarter Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Claudine Prowse, Vice President, Investor Relations, you may begin your conference.

Thank you, Melissa. And welcome to Biogen Idec's Third Quarter 2012 Earnings Conference Call. Before we begin, please visit the Investors section of biogenidec.com to find our press release and related financial tables including a reconciliation of the non-GAAP financial measures that we'll discuss today. Our GAAP financial results are summarized in Tables 1 and 2. Table 3 includes a reconciliation of the GAAP to non-GAAP results, which we believe provides additional insight into the ongoing economics and reflects how we manage the business internally. We have also posted slides on our website that follow the discussions related to this call. I would like to point out that we will be making forward-looking statements which are based on our current intent, belief and expectations. These statements are subject to certain risks and uncertainties, and I encourage everyone to consult the risk factors described in our SEC filings for additional detail. Actual results could differ materially from our expectations. 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 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, Claudine, and good morning, everyone. Our strong momentum continued into the third quarter. We delivered 6% revenue growth to $1.4 billion, managed our expenses and continued to advance the late-stage pipeline. As you can see from the press release, we had a very solid quarter across the products and delivered strong earnings growth to the bottom line. Non-GAAP EPS was $1.91, up 19% year-over-year, although this number was bolstered by a onetime item of $32 million relating to the monetization of our royalty and other rights related to Benlysta. The AVONEX business continued to deliver improved contribution driven by share performance within the ABCRE class both inside and outside of the U.S. The AVONEX PEN, designed to improve the self-injection experience, renewed physician interest and helped to maintain share of voice and awareness of the brand in a competitive market. We continued to see steady year-over-year growth in TYSABRI units both in and outside of the U.S. Awareness remains high for our risk stratification tools and we're seeing nice growth in testing volumes. The key attribute of TYSABRI continues to be strong efficacy. We believe the investments we're making in the product risk stratification will keep the growth trajectory moving in the right direction. We also made progress with our late-stage pipeline. We were delighted to announce positive top line results from our registrational study for Factor IX in Hemophelia B and we're expecting results for Factor VIII in the near future. Last week, the FDA informed us of an extended PDUFA date for BG-12 to allow more time for the review of the new drug application. The extended PDUFA date is now in late March. Additional studies were not requested, and we continue to work with the agency to facilitate the review. And while this 3-month delay is, of course, disappointing, our view of the potential of BG-12 to benefit patients with MS has not changed. Awareness remains high, aided by the recent publication of BG-12's pivotal data in the New England Journal of Medicine. These studies, which form the foundation of the regulatory filings, support BG-12's potential as a new oral option for MS treatment. Earlier this month, we also shared more than 50 company- and partner-sponsored presentations at the ECTRIMS meeting in Lyon, France. These presentations included data reaffirming the powerful efficacy of TYSABRI; AVONEX's 16-year history as a proven and effective, safe MS therapy; analysis of pool data from the Phase III DEFINE and CONFIRM trials of oral BG-12, as well as supporting data on daclizumab and anti-LINGO as possible treatments for MS. I think the breadth of our presence and the presentations highlight our continuing leadership in MS and our commitment to bring better medicines to patients in all segments of the market: the well-established injectables, the high-efficacy segment, as well as the growing oral segment. So with those highlights, I'll now turn the call over to Doug Williams to take you through the pipeline advances in more detail.

Thanks, George. During Q3, we continued to made progress on several fronts with our R&D programs. These advances should position the company for substantial future growth. Let me begin by focusing on our late-stage pipeline. Last month, we announced positive top line results from B-LONG, the registrational study of our recombinant long-lasting Factor IX. Let me briefly summarize the study objectives and top line results from the study. Primary objectives of the B-LONG study were to assess the safety and tolerability of long-lasting Factor IX, efficacy in all treatment arms of the study and a comparison of the annualized bleed rates or ABR between the episodic treatment arm of the study and the weekly and individualized prophylaxis arms of the study. The results showed that, compared to the episodic treatment arm of the study, the ABR of the weekly or individualized dosing arms of the study showed reductions in ABR, where the overall median ABR was 2.95 in the weekly prophylaxis arm, 1.38 in the individualized prophylaxis arm and 17.69 in the episodic treatment arm. Greater than 90% of bleeding episodes that occurred were controlled by a single injection of long-lasting Factor IX. Importantly, at least half of the subjects achieved a dosing interval of 14 days or more in the individualized prophylaxis arm. No patients developed inhibitors to Factor IX and there were no cases of anaphylaxis. Long-lasting Factor IX was generally well tolerated in the study. While there's still ongoing analysis being done with the B-LONG study, we're now working very hard to complete our regulatory submission for filing in the first quarter of 2013. We look forward to sharing with you top line results from A-LONG, the registrational study for our recombinant long-lasting Factor VIII, in the near future. Moving now to our late-stage neurology franchise. We showcased the interim results from ENDORSE as a late-breaking presentation at the ECTRIMS meeting. ENDORSE is a double-blinded Phase III extension study evaluating the long-term safety and efficacy of BG-12 at a dose of 240 milligrams BID or TID. At the time of the analysis, ENDORSE had enrolled over 1,700 patients with relapsing-remitting MS who had completed the DEFINE or CONFIRM studies. In ENDORSE, the safety profile for patients was generally consistent with that of DEFINE and CONFIRM and no new safety issues were identified in subjects who continued on BG-12 or were treated for more than 2 years. The incidence of serious infections was low, consistent with DEFINE and CONFIRM, and there were no opportunistic infections in patients treated long term with BG-12. The types and frequency of malignancies that were observed in the treatment groups were expected in the population under study. This trial will continue until our expected completion date in 2016. In a second late-breaking presentation at ECTRIMS, we highlighted primary efficacy results from SELECTION, the one-year extension study of SELECT, the first registrational study of daclizumab HYP or DAC. The results of SELECTION supported the positive findings seen in SELECT and indicated DAC's clinical effect was sustained through the second year of therapy. Safety results of SELECTION showed that the safety profile of DAC was similar in years 1 and 2 of therapy. Moving on to TYSABRI. We continue to build and improve upon our risk stratification tools. The generation 2 assay was launched in Europe earlier this year and we anticipate launching it in the U.S. in the coming months. This assay will provide for improved sensitivity and specificity to detect patients with low levels of JCV-specific antibodies. Looking ahead to the remainder of 2012, we expect to share top line results from A-LONG, the registrational study of long-lasting Factor VIII, in the near future; and the Phase III study of PEGylated interferon beta-1a in relapsing MS in early 2013. For EMPOWER, which is the Phase III study of dexpramipexole in ALS, the study remains blinded and we expect top line data readout by late this year or early next year. In late September, the last patient completed 12 months of treatment in EMPOWER. As a result, all clinical sites are now actively working to evaluate all patients still active in the trial for the final study visit. That timing of these visits will drive the timing of the top line data readout. I look forward to providing you with updates on our progress for our late-stage programs in the coming quarters. Turning now to the early-stage pipeline in research. I'm pleased to announce that we enrolled our first patient this past quarter in the Phase II study of anti-TWEAK for lupus nephritis and the Phase Ib study for BIIB037 for Alzheimer's disease. The TWEAK program will examine the impact on renal function of treatment with a neutralizing antibody against TWEAK in combination with standard of care. The TWEAK molecule is associated with renal flares in lupus nephritis patients and the absence of immune effects of TWEAK make this an ideal molecule to combine with current standard of care treatments, such as CellCept, which are profoundly immunosuppressive. Our BIIB037 program is a multiple ascending dose Phase Ib study of our anti-beta-amyloid antibody in patients with Alzheimer's disease. The study will examine the reduction of beta-amyloid by imaging to define the optimal dose for future studies. Proof-of-concept studies for anti-LINGO are expected to begin dosing in the fourth quarter of this year for optic neuritis and the second half of next year for relapsing and progressive forms of MS. Finally, we've decided with our partner, Portola Pharmaceuticals, not to proceed with the planned Phase IIa trial in RA because the lead compound did not meet the stringent target product profile to be competitive in this specific market. We're continuing to do exploratory work in allergic asthma as a possible indication for the lead molecule and are focusing on additional 6 selective backup compounds for what we believe is a key pathway in chronic autoimmune and inflammatory diseases. We also took steps in the quarter to strengthen our discovery research capabilities through restructuring and reallocation of resources to support those early stage activities. These steps are consistent with the strategic priorities of the R&D group which I laid out in some detail at the Analyst Day in June. With that, I'll now pass the call over to Tony.

Thank you, Doug. Solid execution of our product strategies drove 6% revenue growth in the third quarter. Global AVONEX revenues increased 8%, driven by a 5% units increase year-over-year, as we continued to experience competitive share performance within the ABCRE class across markets. We continue to be pleased with the uptake of the AVONEX PEN and believe strong commercial execution is driving strong performance. Convenience is an important differentiator in the ABCRE class, and as a once-weekly treatment, AVONEX has become a compelling choice for both patients and physicians. During the third quarter, more than 2/3 of all new AVONEX starts in the U.S. have been with the PEN. We've also seen strong conversion from the prefilled syringe to the PEN, which we believe will benefit longer-term retention. Similarly, we've seen significant interest in the AVOSTARTGRIP as over 2/3 of all new starts on AVONEX in the third quarter titrated with the AVOSTARTGRIP. Outside of the U.S., AVONEX remains the prominent MS therapy and we maintained our leading market share position. Unit growth in these markets was strong, increasing 8% year-over-year. Similar to the U.S., the AVONEX PEN is continuing to drive strong unit demand across Europe. Moving on to TYSABRI. Third quarter global TYSABRI units increased 9% versus prior year. We experienced strong unit growth both in the U.S. and outside the U.S., with TYSABRI units growing 10% and 8%, respectively, in the third quarter versus prior year. We are seeing solid growth in new patients, with 2,100 added during the third quarter. We're pleased with the execution of our commercial strategy. TYSABRI's core efficacy message continues to resonate with physicians and risk stratification and the use of the JCV assay continue to build physician belief in TYSABRI's benefit-risk profile. We see testing volumes growing nicely. Physicians are increasingly testing new candidates for TYSABRI. And we see greater confidence in moving the product earlier in the treatment paradigm. During the quarter, U.S. discontinuations rates remained stable quarter-over-quarter and TOUCH forms for newly diagnosed patients increased to the low double digits, providing confidence in our commercial strategy. In Europe, the rollout of the second-generation assay has contributed to a moderate increase in discontinuations. While we believe that TYSABRI will continue to see periods of lumpiness in net patient adds, we believe we will continue to see an overall solid growth trajectory. While we were obviously disappointed by the PDUFA extension in the U.S. for BG-12, we feel well prepared as we continue to invest in prelaunch preparations and detailed tactical planning. We are also accelerating our commercial activities for the hemophilia franchise given the recent positive readout in Factor IX and in anticipation of the upcoming Factor VIII readout. We have a strong nucleus of commercial leadership in place and we'll continue to build out the team, infrastructure and supply chain necessary for a successful launch. The hemophilia market will be a new market for Biogen Idec, but we understand the requirements for commercial success as we continue to build awareness, establish trust and credibility and attract world-class talent. We believe our commercial momentum is solid. We are executing our strategy successfully and believe we are well prepared for potential upcoming launches. With that, I'll hand the call over to Paul.

Thanks, Tony. Our GAAP diluted earnings per share were $1.67 in the third quarter. The primary differences between our GAAP and non-GAAP results are outlined in the earnings presentation and include $51 million related to the amortization of acquired intangibles, $10 million in fair value adjustments for contingent consideration and $8 million related to the research restructuring executed in the quarter. This was partially offset by the tax impact on these items. Non-GAAP diluted earnings per share were $1.91, up 19%. As George noted, this quarter we favorably benefited from the $32 million recognized from the sale of our royalty and other rights related to Benlysta. In addition, as a result of our decision not to move the Syk Inhibitor program into Phase II, we did not incur the previously anticipated $23 million milestone payment. Let me walk through the financial results now. Q3 AVONEX worldwide revenue was strong, growing 8% to $736 million. In the U.S., AVONEX grew 12% to $462 million. U.S. unit volume increased 1% versus prior year and was up 2% versus last quarter. Inventory in the wholesale channel ended at slightly less than 2 weeks, a modest increase compared to the prior quarter. As we mentioned last quarter, there may still be some AVONEX stocking in the retail outlets to likely balance the demand for the prefilled syringe in PEN. As a result, we cautiously believe that there could be excess inventory in the retail channel that may unwind over the next couple quarters. Internationally, the underlying AVONEX business is strong as units increased 8% year-over-year. International AVONEX revenue was $274 million in the quarter, an increase of 1% compared to third quarter of 2011. Foreign exchange was a meaningful headwind for the quarter, weakening AVONEX revenue by $29 million. This was offset by a $9 million hedge gain, as compared to a $9 million hedge loss in Q3 2011. AVONEX international revenues were also impacted by certain modest price reductions across a few select countries and a mix shift to lower-priced distributor markets. TYSABRI worldwide end market sales were $404 million, an increase of 3% year-over-year. Biogen Idec recorded TYSABRI product revenues of $275 million. In the U.S., TYSABRI product revenue to Biogen Idec grew 15% to $98 million. Q3 international TYSABRI product revenues were down 8% to $177 million, while units increased 8%. The disconnect between unit and revenue growth was driven by approximately $14 million of deferred revenue in our Italian affiliate and the impact of foreign exchange. FX for the third quarter weakened TYSABRI international revenue by $19 million versus prior year. We offset this by a $30 million gain from hedging compared to a $2 million hedge loss in the prior year. U.S. RITUXAN sales were $787 million, up 7% versus prior year. RITUXAN continues to experience continued penetration in NHL maintenance setting and further uptake in CLL. Our U.S. profit share from that business was $259 million. Royalties and profit share on sales of Rituximab outside the U.S. were $29 million. The result was $288 million of revenue from unconsolidated joint business. FAMPYRA revenue was $12 million for the quarter. Recall that the GBA gave FAMPYRA a level 5 rating and provided a range of approximately EUR 1,000 to EUR 3,000 per year as the price that they're willing to reimburse. We're currently in price negotiations with the German authorities and expect a resolution in early 2013. As of August 1, we've been recording FAMPYRA revenue at a net price that assumes the lower end of the range and we'll continue to do so until the final price is established. Royalties were $47 million and we recorded $12 million of corporate partner revenue in the quarter. Now turning to the expense lines on the non-GAAP P&L. Q3 cost of goods sold were $139 million or 10% of revenues. The increase in COGS year-over-year was driven by higher AVONEX revenue, higher cost of the AVONEX PEN, nurse training fees and an increased funding related to the JCV assay. Q3 R&D expense was $296 million or 21% of revenues, lower than anticipated due to the timing of certain clinical trial expenses and the avoidance of the expected $23 million payment for the Syk program. Our research spend was also temporarily down during the quarter due to the research restructuring. Q3 SG&A expense was $298 million or 22% of revenues, an increase of 15% over last year as we prepared for potential commercial launches. Collaboration profit sharing line totaled $76 million. We now have a new line item on the P&L, as you may have noticed, called "gain on sale of rights." Prior to this quarter, we're eligible to receive low royalty from GSK in each GSI on global sales of Benlysta. We sold our Benlysta royalty and other rights to a DRI Capital-managed fund. DRI will now pay us a multiple of those royalties for the period covering October 2011 through the third quarter of 2014. This will be recorded on the gain of sale of rights line. During this quarter, we received $32 million from DRI, representing essentially 3 quarters of activity. We expect quarterly payments through the third quarter of 2014 as a gain on the P&L to be less than the amount paid this quarter, independent on the uptake of Benlysta. Other income and expense was a loss of $5 million in Q3. Our Q3 non-GAAP tax rate was 24.2%. In the third quarter, our weighted average diluted shares were 238 million. And we ended the quarter with $3.3 billion in cash and marketable securities, of which approximately 1/3 is outside the U.S. This brings us to our non-GAAP diluted earnings per share which were $1.91 in the quarter, an increase of 19% year-over-year. Now I'll turn to our updated full year 2012 financial guidance. Overall, we're raising our full year guidance to close to a double-digit increase in non-GAAP earnings. This has been a year characterized by very solid commercial performance on our core products, coupled with meaningful investments to mature the late-stage pipeline and prepare for potential product launches. We expect full year revenue growth of mid-to high single digits, a modest improvement over prior guidance. While we're working to resolve the IE for TYSABRI claim in Italy, our current guidance does not include a resolution in 2012. Regarding FAMPYRA, as I previously mentioned, the balance of the year assumes revenues recorded at the lower end of the GBA range. Our full year forecast also assumes a modest slowing of U.S. RITUXAN revenues in the fourth quarter due to wholesale dynamics, which is characteristic of past year-end trends. Our expense targets are largely on track to our original full year business plan: cost of sales expected to be between 9% and 10% of total revenue; R&D, expected to be between 24% and 25% of revenue. Our R&D forecast includes approximately $20 million to $30 million of an upfront payment in the fourth quarter earmarked for a discovery collaboration which we're in the process of negotiating. Additionally, we expect to incur some supply chain spending related to dexpramipexole to be prepared in the event of a positive readout. SG&A is expected to be between 22% and 23% of total revenue. During the fourth quarter, expect meaningful increase in investment for prelaunch activity, building out our customer-facing resources, product positioning and promotional planning, scientific outreach, preparing the patient services organization and readying our supply chain and distribution organization. This spending is purposely back-end loaded as we get closer to the potential BG-12 launch. We put our Denmark manufacturing facility into service during the month of September, which is a very positive milestone. And we'll seek formal regulatory approval for TYSABRI supply in mid-2013. The short-term P&L impact of this was a change from capitalizing interest to expensing it. This will result in approximately $7 million of noncash expense in the fourth quarter which will be recorded on the OI&E line. We expect our tax expense in 2012 to be between 23% and 25% of pretax income. As a result, we now anticipate non-GAAP earnings per share to be between $6.40 and $6.50 and GAAP earnings per share to be between $5.63 and $5.73, an increase from previous guidance by approximately $0.20. This is due to the combination of the gain from the Benlysta-related transaction and the strength in the core business. As you likely noted, we expect our third quarter earnings per share to be the high watermark for the year, and the fourth quarter, conversely to be the low watermark. This is due to the many of the P&L items I've highlighted, included the significant prelaunch activity in the fourth quarter, the potential research collaboration highlighted, the step-down of the Benlysta-related gain and the interest expense related to the Denmark manufacturing facility. So this was a solid quarter, and while we have an additional quarter to go, we're positioned nicely for a successful year. I'll hand the call over to George for his closing comments.

Okay, thanks, Paul. So look, as you can see, during the quarter we made excellent progress across our financial, commercial, R&D objectives for the year. And it's an exciting time for us as we look to close out the year and move into 2013. We had a positive result for the long-lasting blood Factor IX for Hemophelia B and have 3 more pivotal trial data readouts ahead of us: Factor VIII for Hemophilia A, dexpramipexole for ALS and PEGylated interferon for MS, an all-time high for by Biogen Idec and the result of the commitment and productivity of the talented employees across the organization. As we prepare for the potential of multiple product launches in the coming years, we'll continue to be vigilant, keeping a tight lid on costs while investing where necessary to ensure that we have successful launches and a pipeline that delivers sustainable growth for the future. We believe that we're on track to deliver solid revenue and EPS growth in a year in which we've had a number of pipeline successes and in which we're investing heavily for the future growth that we anticipate from our new products. And that's not an easy thing to do. I want to thank our dedicated employees who have helped us to achieve our goals, as well as patients and physicians who are always central to what we do. So with that, we'll now close our remarks and open up the call for questions. Thanks to all of you for joining us this morning.

[Operator Instructions] Your first question comes from the line of Eric Schmidt from Cowen and Company.

George, just a quick question on the BG-12 PDUFA date delay. Did you receive a reason for that delay from the FDA? Was some sort of data resubmission classified as a major amendment? And if so, what might that have been?

Yes, thanks, Eric. I'm -- why am I not surprised that's the first question? Okay, look, technically, the answer to your question is, yes, it is a major amendment. But let's understand what the term -- major amendment is kind of a term of art. So in the normal review of an FDA -- of an NDA, the FDA asks questions of the sponsor and to which the sponsor, in this case us, response in writing. So the FDA has the ability to determine that any of those responses can be classified as a major amendment. And so by doing so, the FDA extends the PDUFA date for 3 months, and as far as we know, there is no other mechanism by which the FDA can extend the PDUFA date by 3 months. So the fact that a response is classified as a major amendment doesn't necessarily mean that there are problems with the application or the drug. It can mean only that the FDA believes it needs more time to review the application, the answers to the questions, and will not be able to meet the original PDUFA date. And we believe that's the case with our application. And as you know, Eric, a 3-month extension has been applied to a lot of other compounds, including recent approvals in MS. So we believe we're on track, and we have a 3-month delay.

It sounds like you were prepared for that one.

It wasn't a surprise.

Your next question comes from the line of Geoff Meacham from JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: I guess, just a follow-up to that and to some of Paul's questions -- or Paul's comments on the fourth quarter. Sounds like you guys are investing pretty heavily in the BG-12 infrastructure ahead of time. But maybe just give us kind of an update with where you are with respect to hiring, promotional and what sort of cost that you've already incurred and maybe the timing of when you think you'll start to roll out some of the more commercial personnel costs with respect to the launch.

Yes, Geoff, let -- Tony and I will try to tag-team that. So and I'm glad you asked the question because, certainly, this -- as my guidance implies, there's some lumpiness in the quarter-to-quarter trends on SG&A expense, and that's very purposeful on our end. Costs for Q3 were a little bit lower than we expected for both R&D as well as, actually, SG&A. I mean, that's just kind of the way things kind of turned out for Q3 and resulted in some pull-through on the bottom line, but we do intend -- and it's more than just the personnel costs, right? It's more than just the customer-facing resources. We do intend to, over the next 90 days, or now nearing in on the next 60 days, to really prepare for BG-12 across customer facing, medical education, scientific education, preparing the whole organization. So I think that is very consistent with what we've said over the past is this is a rare opportunity that we have. We don't want to be pennywise and pound foolish, so we'll put kind of the investments in as we get ready for kind of what we hope is a BG-12 launch early in the second quarter of 2013. Tony?

Yes, thanks, Paul. So, Geoff, look, we had the plan for approval. Obviously, you'd want us to do that in resource and the critical areas for approval, particularly getting people trained and in place. So we are obviously well into that ramp for the right reason, but we also planned for the contingency. So we will have to adjust, redeploy and look to manage discretionary spend in the light of this delay and manage the ramp over time. So that's what we will do tactically at this point.

Your next question comes from the line of Geoffrey Porges from Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: And just to follow up on some of the commercial comments rubbed [ph] and BG-12. First, could you just help us reconcile TYSABRI? The patient growth trend looks like it's in the high teens year-over-year. And I know there are some onetime items in there, so if you could just sort of bridge us back to that patient growth trend. And secondly, could you let us know about the pricing? You mentioned a couple of negative pricing effects for AVONEX. Could you give us a little bit more detail about the magnitude and whether that's likely to continue to play through the results for the immediate future?

Yes, thanks, Geoffrey. It's Tony. So on the numbers, TYSABRI is never an exact straight line between patients, units, et cetera. We have seen, we think, you look at U.S. and Europe, solid unit growth year-on-year and solid patient growth year-on-year. But as Paul will talk to, the impact outside the U.S. was more pricing, particularly IEFA and some FX issues.

Yes. And just to add, Geoff. And I think this is a probably continued commentary from our partners' conversation yesterday. Most of the imprecision, if you will, is rest of world patients, right? We have pretty darn good visibility, we think, driven by the TOUCH program in the United States for the patient calculation. Outside the United States, it really is -- and I apologize if we presented it as if it's precise data, but outside the United States, it's a combination of registries in certain countries, literally unit triangulation in other countries where we don't have registries. So I don't -- and we adjust those as we look backwards. I don't think that, as we do that and we look back, it has at all changed the fundamental story. The disconnect outside the United States between units, patients can be driven by what we just talked about, the imprecision of the data. It could be driven by compliance, which we don't think is a big deal, right? We've seen that in past years with TYSABRI, with drug holidays, suspension. We're not sensing that outside the United States and in Europe. And then it can be driven by inventory in parallel trade dynamics in Europe specifically. We do know of some parallel trade issues in the quarter that we work extremely hard, like any other biopharmaceutical company, to try to limit those, but there were some dynamics. And what ends up happening is units show up in one quarter versus -- as opposed to the other quarter from a patient perspective. The second part of your question, Geoff, was designed around AVONEX. I'd underscore, it was modest price reductions. We had seen some price reductions driven by austerity measures in 2010, 2011. Spain was one of those, as we pointed out in our SEC filings. This quarter, the most notable one was France where just kind of normal kind of price conversations with France resulted in a little bit of a low-single-digit decline in AVONEX price there. But I think we're weathering through that quite well in the aggregate.

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

First one is, did you guys submit any -- maybe it's for Al, I guess. I mean, did you guys submit any FUMADERM data in your BG-12 regulatory package, either in the EU or in Europe? And then on dexpramipexole, hey, Al, we all understand statistical significance if you hit your p value or not. But assuming you hit your p value, what do you think the data need to show so that the ALS community will really view the drug as a really important breakthrough and that would then allow you to get, perhaps, MS-type pricing?

Yes. Mark, this is Doug. So with respect to the first question, I'll take that, and then I'll pass it off to Al to address the question about ALS. With respect to FUMADERM, these are 2 different drugs, as we've been maintaining all along. FUMADERM is a mix of fumaric acid esters and BG-12 is dimethyl fumarate in a different formulation. So obviously, the regulators are aware of the data around FUMADERM, particularly in Germany which is where that drug is approved for psoriasis. But 2 different drugs in different populations of patients with different comorbidities, so no, it's not necessarily relevant, we believe, to the BG-12 situation.

Mark, on the dex question, the primary endpoint basically has 2 components: the functional rating scale and survival. And you'd kind of have to break it down to the -- into the both -- into the 2 components in order to know whether or not it's clinically meaningful. So on the ALSFRS, the community, the ALS physicians have decided that a change of greater than 20%, so a greater-than-20% change in the slope of decline is considered clinically meaningful. And then on the survival, Riluzole is sort of a benchmark for survival. As you know, in the States, Riluzole is not very commonly used, although in Europe and in Japan, it's quite commonly used. And Riluzole had about a 3-month extension of survival on average, and so I think that that's certainly a benchmark that people will use.

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

Yes, I just wanted to follow up on a comment, Paul, I think you made about dex, that you're building up manufacturing there. Is there anything that you're seeing in the blinded data that would cause you to do that to give you more confidence? Or is it really just a hedging strategy? And then I was curious, separately if you could talk about the XenoPort product, Al or Doug, if you had a view of that being competitive with BG-12 based on the early Phase I data.

Yes, Rachel, I'll start with the first part of the question. So it has nothing to do with the data. I don't have any -- that information at all. And it's -- I'm glad you asked because we'd hate to have it be read that way at all. The basic thinking is that, if this trial is a positive trial in this disease and in this patient population, it's such a high unmet need, that we need to be prepared for that. I mean and we're going -- we would need to be prepared for a potential relatively quick review and the potential to supply patients even before that in some form or fashion. So that's -- and into -- the lead time, otherwise, even for a product like dex, is well beyond. We'd need to start it now. So that, we've taken on as what we call at-risk spending. It hits the P&L. We can't capitalize inventory until we get to a Phase III readout. So that literally is just our thinking around in case this is a positive readout. From a commercial perspective, we've paused with respect to a lot of dex -- we're doing a little bit of work there but we haven't done it to -- certainly to the magnitude that we're doing in BG-12. And -- but we think that, if it's positive, we will quickly be able to turn on the dime there.

And Rachel, this is Doug. With respect to XenoPort, obviously we're aware of the data. We've been tracking what XenoPort has been doing with that compound, and we feel very confident in BG-12. We've got very large data set that we've accumulated in the Phase III program and now supplemented that with the ENDORSE results that we presented at ECTRIMS, which further extends the safety experience with that drug. So that, plus the fact that we have our own life cycle management activities going on that we feel good about, I think we feel like we're in a great position.

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

So I have 2 questions. One, just -- I don't know if you can answer, but maybe if you can just give us a little bit of a sense. Gilenya's price came out much higher than was expected; Aubagio's pricing is pretty good. How are you guys thinking about BG-12 versus these 2 drugs? And then I had a follow-on for Paul also.

Yaron, it's Tony. So we are thinking hard about it.

Can you let us know how hard and in which direction?

We'll think about it right up until the day we price. Look, I think we've said in the past it's unwise to comment on any kind of detail on pricing strategy. We're looking very closely at what's happening to the category and we're going to just try to strike the right balance.

I mean, when we calculate the data and from different sources, we're getting to around a 30% gross to net. Does that make sense to you in MS? And how fast do you need to discount until you're going to see sort of a gross-to-net for BG-12 once it launches?

Yaron, this is Paul. It actually -- it's a function of a bunch of different things, including the channel dynamics and as well as the government mix in that product. I mean, MS isn't going to be that different product to product to product. But the government part of the business, as you know, in the United States is limited to the kind of a -- essentially a CPI index. So and I guess the other big factor is the percentage of the business or the products business that is helping to support unemployed people in patient-set need. So I mean, I'd just pause to say it's -- that is -- that probably isn't too far off the mark, but it can change product to product.

[Operator Instructions] Your next question comes from the line of Michael Yee from RBC Capital Markets.

My question actually is on the BG-12 European submission. Can you remind us where you are there and that have you gotten 120-, 180-day questions? And in relation to that, the delay that you got in the U.S., was that actually a submission of data or any sort of submission of safety that triggered it? Or is it just simply a response to questions? I wasn't really clear on that.

Well, in Europe, we submitted soon after we submitted in the United States earlier this year, in late February-March time frame, and we're on track. We're not going to comment on -- we're having the normal regulatory interactions. We're basically on track.

And as far as the second question. This is Doug. As George described earlier in the call, this was just sort of normal course of business in terms of responding to questions from FDA. And so they determined, based on the back and forth, that essentially they needed more time to review the file.

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

So just maybe you could comment on the BG-12 IP strategy, when we might learn a little bit more about the strategy around some of the longer patents that you guys have referenced either from an application or issuance perspective and kind of where we are with that. And then just second, on Hemophelia, given that we've seen B-Long, maybe it'd be helpful if you guys could characterize what your thinking would be good data from A-LONG particularly in terms of dosing frequency.

Thanks, Marshall. This is Paul. I'll try to address the IP situation. Nothing terribly new to report with respect to where we think we are -- stand in the EU, as well as in the United States with the 999 patents and the 5 years of data exclusivity even underneath that. I think what you're mostly referring to is our -- what we've done is file for a formulation patent that has the potential to extend it out much later than that. That has been filed over the last year and we don't have visibility and probably won't for a little bit of time in terms of the ruling on that.

And Marshall, this is Doug. Just speaking to your question about success in the Hemophilia A study. We haven't really quantified that, I think, in terms of, say, a target product profile with percentage of patients and frequency of dosing. But I'd just take you back to the Phase I/II experience where that change in half-life translates to somewhere on the order of 50 to 80 fewer infusions for a patient with Hemophilia A. If we can replicate that in the Phase III experience, I think we'll feel very good about the product and what its potential is in the marketplace.

Your next question comes from the line of Joel Sendek from Stifel, Nicolaus. Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division: I have also a question on Hemophelia. So you said, for the next study for the Factor VIII study in the near future. Can we interpret that to be this year for the data? And if that's the case, would you be on track -- if it's positive, would you be on track to file in the first quarter? And can you give us any more details around what -- beyond your prepared comments on how you're preparing for the launch.

Well, I'll take the first 2, and it's fairly easy. The answer is yes and yes. And I'll sort of defer the question on the commercial preparation to Tony.

Yes. Thanks, Joel. So we have focused, not surprisingly, on the long lead time thing. So where we've added commercial focus is on thinking about product positioning and how to build awareness over time, thinking about health economics data, et cetera. We're obviously still a long way from adding true customer-facing resources, but distribution strategy, patient services strategy, that's all the stuff we're thinking, with kind of a core central theme. And then as we get closer to launch, when we get there, we'll obviously build out the customer-facing stuff.

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

With the BG-12 time line pushed out, I'm just wondering if you might be able to get the aspirin and/or titration studies on the initial label now. And also wondering, might you actually be able to derive some synergies from a closer alignment of the U.S. and European commercial launches? And then just separately, on TYSABRI, is there any defined process we can look towards for that dispute resolution in Italy, any timetable? I know you said, unlikely this year. But how should we be thinking about that going forward?

Okay, our pencils are scribbling away at your 1, 2 and 3 questions there, Brian...

I'll take the number one, Paul, which is the aspirin study. No, we don't anticipate that we will be able to add that into the initial filing. There's no mechanism where we can do that.

And then I think the other thought you had, Brian, were synergies that, now that you appropriately kind of have the math right that there is closer alignment between the U.S. FDA approval and the EU approval. I think the way to think about that, though, is that they're modest. Outside, in Europe in particular, as you know, there's approval and then it's country-by-country rollout. So certainly, Germany likely is going to be one of the first and the normal, as you would think. And the last question, Brian, I think you had was around IEFA timing. We, as our partner, we're frustrated and disappointed that we weren't able to get it done this year. It's still not over, right? It's just that's the guidance that we have built into the financials and want to have that for expectations. I think that's appropriate. As we move into 2013, it certainly -- we -- certainly, that is a big objective of ours.

Your next question comes from the line of Thomas Wei from Jefferies. Thomas Wei - Jefferies & Company, Inc., Research Division: On SG&A, with the third quarter SG&A number coming in a little bit lighter than the whole Street had expected, that makes the 4Q SG&A larger than what we had modeled. And at the midpoint of the guidance that you've given on SG&A, it looks like that -- basically, that number times 4 would get you to the SG&A consensus for 2013. And so I just wanted to understand a little bit better: Should we assume that, as you actually go into 2013 and there are actual product launches underway, there should be a very healthy increase in those costs beyond what the run rate is in the fourth quarter?

Yes, Thomas, thank you. This is Paul. Let me give a little bit more color to help on that. A lot of the step-up, 3 to 4, some of it is labor, personnel, customer-facing costs, but a lot of it is fees and services. So we have the ability to kind of -- and we purposely wanted to throttle that a bit more, going into the fourth quarter, closer to launch. So that's a bit purposeful. So I think that's -- it's just kind of a helpful framing. It's -- and then, as it relates to 2013, I mean, quite frankly, we really need the next few months under our belt, next 3 or 4 months under our belts, which will give us a greater clarity on the next set of pivotal trial readouts. I think I've described that 2013 could be a year of launching 0, 1, 2, 3 or 4 products. And that if it's the right-hand side of that equation, it obviously puts upward pressure on SG&A for all the great -- all great reasons. And if not, it puts a little bit less of upward pressure on SG&A. So I think it's going -- as we spin into 2013, it very much is a function of the pivotal trial readouts that are upon us over the next -- this cohort of pivotal trial readouts. And we'll get -- we should get greater visibility, obviously, as we've noted, soon with respect to Factor VIII by the end of the year or early 2013, for dex. And I think -- so then, we'll be able to talk a lot more about SG&A.

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

I wanted to ask one question for Doug and then a couple of housekeeping, if I may. Doug, on 037, given the data that came out with Sola at ANA, and I recognize that this is a Phase I dose-ranging study with MRI endpoints, but has your thinking changed there with respect to the clinical development of 037? And then secondly, Tony, with respect to AVONEX OUS, sequentially, I recognize a tender occurred in Q2 in Brazil, but does that actually get recorded all at one time? I'm trying to understand the sequential decline x some inventory. And then finally, Paul, on Southern Europe, I recognize Italy, but did Spain pay you this quarter? Are they still on credit?

Tony, it's Doug. No, it hasn't really changed our thinking about the development of our own antibody. I think we're pretty bullish on the fact that the antibody we have is distinctly different in terms of its mechanism. I think the ability to remove plaque -- beta-amyloid plaque is going to be perhaps more like the Roche antibody that's been reported out, just based on our mechanism versus the mechanism for the other antibodies. So we believe that the ability to rapidly remove beta-amyloid is going to be a benefit that our drug will demonstrate in this Phase Ib study. I think that's important in terms of demonstrating efficacy. I think you also have to take into account the population of patients that was looked at in some of the early studies. We, like everyone, are moving to an earlier population of patients, which I think is a prudent and intelligent way of approaching treatment in this patient population. So we're going about the study, and I think in a very rational and systematic way using imaging as a way of defining optimal dose for our drug to go forward into what I'd characterize as sort of proper efficacy studies where we'll be looking more carefully at endpoints like cognition. So I think we're learning from the previous studies that have been reported and trying to apply that learning to our own molecule. But we're still excited about the antibody and the prospects.

Tony, it's Tony Kingsley. On the Brazil situation, specifically. So specialty products in Brazil are purchased centrally by the government. AVONEX falls under what's effectively an administrative tender, which is essentially kind of a once-a-year price negotiation. In fact, they end up ordering quarterly, so shipments that are actually made are done on a quarterly basis based on the government's estimate of what they will need to fill the demand in hospitals. There is sometimes some quarter-to-quarter timing just when the shipment comes based on what the government does, but it's not like an all-or-nothing tender that you see in some different places. It's largely administrative.

Yes, so and then just to build on -- I think what you're trying to get at is kind of the sequential AVONEX unit trend. Q2 was an extremely strong AVONEX unit, if you recall, one, for what you had noted. The second was that we actually benefited in Q2 from a refill from the product supply issue that we had in Q1. So we're -- the net of that is, hey, we're very pleased with our AVONEX unit trend as we swing through a year-to-date basis outside the United States. The other part of your question, I believe, was with respect to accounts receivable in Southern Europe. The second quarter was a very strong payment from Spain as many pharmaceutical companies -- so we benefited from that as well. The third quarter, I think, Spain has kind of gone back to what was more traditional over the last year or 2. We remain at those -- the 3 countries in Southern Europe: Italy, Spain and Portugal, as our areas of key focus from an accounts receivable perspective. We have, in aggregate, a little bit over $200 million of accounts receivable in those 3 countries. And I think, as people know, in Greece we're actually on a cash basis, with a distributor relationship there. So it's -- for us, it's centered in on those 3.

Your last question comes from the line of Marko Kozul from Leerink Swann.

I think there was a previous question on dexpramipexole and pricing. Just wanted to come back to that and ask what your thinking is, if you did show a 20% or 30% decline in the slope of the ALSFRS. And then my question was actually regarding daclizumab, if you could give us an update on the Phase III study and how you think the drug could be positioned, if approved, in future years?

So it's Tony. Let me comment on the pricing for dexpramipexole. Look, obviously, we look at all sorts of analogies, but there are huge swings based on what the data says. It'd be very difficult to try to center it on what makes sense. Well, we're obviously looking closely at it, looking at the obvious analogies, but I still think there's a lot of question on the table of what the data will say.

On daclizumab, the Phase III trial is fully enrolled. It's a 2-year trial so we expect the readout in 2014. The -- in terms of positioning, I mean, we'll have to see what the data shows, but in the first registrational study we saw a very strong effect on disability progression, which was unexpected and it was actually significant and also a good affect also on relapse rate and on MRI endpoints. So and also, you combine that with month-to-month subcutaneous dosing. So we'll see what the Phase III data shows in 2014.

Okay. I think our hour is up. Thanks to all of you for spending an hour. And we're -- I'll just sum up and say, look, we're very excited about where we are. I think we've got a great few months coming up ahead of us, a lot of data readouts. And base business continues to do well, so we're -- I think we're in a good place. So thanks to all of you.

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