Biogen Inc. (BIIB) Q1 2013 Earnings Report, Transcript and Summary

Claudine Prowse George A. Scangos - Chief Executive Officer and Director Tony Kingsley - Executive Vice President of Global Commercial Operations Douglas Edward Williams - Executive Vice President of Research and Development Paul J. Clancy - Chief Financial Officer and Executive Vice President of Finance

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division Mark J. Schoenebaum - ISI Group Inc., Research Division Ravi Mehrotra - Crédit Suisse AG, Research Division Robyn Karnauskas - Deutsche Bank AG, Research Division Matthew Roden - UBS Investment Bank, Research Division Eric Schmidt - Cowen and Company, LLC, Research Division Michael J. Yee - RBC Capital Markets, LLC, Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Thomas Wei - Jefferies & Company, Inc., Research Division Matthew J. Andrews - Wells Fargo Securities, LLC, Research Division Terence C. Flynn - Goldman Sachs Group Inc., Research Division Marshall Urist - Morgan Stanley, Research Division John S. Sonnier - William Blair & Company L.L.C., Research Division Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Good morning. My name is Sean, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Idec Q1 2013 Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Ms. Claudine Prowse, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to Biogen Idec's First Quarter 2013 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 our 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. I would like to point out that we will be making forward-looking statements which are based on our current expectations. These statements are subject to certain risks and uncertainties, and actual results may differ materially from our expectations. I encourage everyone to consult our SEC filings for additional detail. On today's call, I'm joined by our Chief Executive Officer, Dr. George Scangos; Tony Kingsley, EVP of Global Commercial Operations; Dr. Doug Williams, EVP of Research and Development; and our EVP of Finance and CFO, Paul Clancy. I'll now turn the call over to George.

Okay, thanks, Claudine. And thanks to all of you for joining us today. Before I start, I do want to make a few comments on the case reports that appeared in the New England Journal of Medicine today. Frankly, it's hard for me to understand why these old reports were deemed worthy of publication at all. And certainly the timing, coming shortly after approval, is interesting. These are old news, right? The cases described in the New England Journal are 2 of the 4 cases of PML that have occurred in over 19 years and over 180,000 patient years of exposure to FUMADERM. All 4 cases were discussed at the JPMorgan conference in January, and all 4 cases were seen by the FDA, European regulatory authorities and all regulatory authorities months in advance of approval. And I think the TECFIDERA label speaks for itself. So just to reiterate, there have been no cases of PML or other opportunistic infections with TECFIDERA. The clinical program has involved over 2,600 patients treated for up to 4 years and with a median time of approximately 2 years. So there's been substantial patient exposure with TECFIDERA. The New England Journal of Medicine cases occurred with different drugs; but even if one does assume their optimum rates are the same, which I do not believe to be true, then the rate is extraordinarily low: 4 cases out of 180,000 patient years. Now we've gone through these cases before, we've described the characteristics of these patients before, I'm not going to reiterate all of that stuff now. And fortunately, I believe that the no -- misinformation being spread is transient and will fade. And in a perverse way, it's somewhat complimentary. Importantly, I can assure you that we're well prepared to make sure that physicians and patients have a balanced picture of TECFIDERA. So with that, we'll move on to the prepared remarks. Okay, it's been a remarkable quarter for Biogen Idec, our shareholders, for patients, as a result of several major accomplishments over the quarter. First, our core business performed very well. Tony and Paul will go into more detail, but the bottom line is that revenues were up 10% to $1.4 billion and non-GAAP earnings were up 41% to $1.97 per share compared to the first quarter of 2012. Both AVONEX and TYSABRI had strong growth, driven by AVONEX's life cycle improvement and TYSABRI's powerful efficacy. AVONEX continued to gain market share within the ABCRE class, and global units grew by 4%. So the core business is off to a great start. Of course, a key event during the quarter was the approval and launch of TECFIDERA in the U.S. as a first-line treatment for relapsing forms of multiple sclerosis. This is a watershed event for our company and for MS patients. We're moving full speed ahead with a great label that allows our commercial team to discuss TECFIDERA in a balanced and broad way to describe the benefits of TECFIDERA, not only on relapse rate, but also on disability progression and MRI end points, both of which are becoming increasingly important for patients living with this debilitating chronic disease. Also during the quarter, we were able to substantially improve the intellectual property protection for TECFIDERA. The U.S. patent for the 480 milligrams per-day dose that the FDA approved has been issued. The patent provides protection for the 480-milligram dose, which is the only approved dose, until 2028. The European Patent Office also determined that claims to the 480 milligrams per-day dose are allowable. And we expect the European patent to issue sometime in the next few months. The patent also will not expire until 2028. We believe our patent protection for the approved dosing regimen, coupled with existing patents, will provide a solid intellectual property portfolio to support our commercialization of TECFIDERA for many years to come. Our recent transaction with Elan in which we gained full control of TYSABRI cleared regulatory hurdles and closed shortly after the quarter on April 2. This transaction provides us with full ownership rights and control of TYSABRI and eliminates the change of control provisions that were in the original contract. The operational simplicity should allow us to be more nimble and focused, which we believe will not only help TYSABRI but the overall business in the longer term. As Paul will outline, it is a deal that will give us an increased share of TYSABRI economics going forward. The transaction is immediately and, we believe, sustainably accretive as we move into the future. It's another landmark accomplishment for Biogen Idec and our shareholders. We also continued to advance our late-stage programs through the registration process, and preparations have begun for 3 more anticipated approvals and launches over the next 18 months. Our 2 product candidates for hemophilia, long-lasting factor VIII Fc and factor IX Fc, are hopefully our next products to reach the market. These products represent the first major treatment advances in hemophilia since recombinant clotting factors were introduced 2 decades ago. If approved, we believe these products will provide meaningful benefit by addressing a compelling need that these patients have, which is to require fewer injections. Hemophilia is roughly a $6 billion market worldwide. There are entrenched competitors in this market and patients tend to stick with their current therapies, but we believe that, for the first time in a long time, we'll be able to offer patients products that actually give them compelling reasons to change. We have a team with deep experience and relationships in the hemophilia community, and we believe that we have the potential to create a significant hemophilia franchise over time. Our PEGylated interferon for MS, PLEGRIDY, finished the first year of the ADVANCE Phase III trial successfully. We plan to file for regulatory approval by midyear for an approval decision next year. We hope to be able to offer patients a therapy that's administered once every 2 weeks subcutaneously, with efficacy that appears to be at least comparable to other products in the injectable class. We believe that, with this profile, patients and physicians will view PLEGRIDY as a preferred frontline option. And behind those is a pipeline of compounds on track to reach development milestones in the next few years, including the SMNrx compound for SMA, anti-LINGO for remyelination MS, anti-TWEAK for treatment of lupus nephritis and STX-100 for the treatment of IPF. We believe that each of them has the potential to be a major improvement in therapy for their target patient population. So in summary, this has been a very productive quarter and year-to-date for Biogen Idec. So I'll now hand the call over to Tony to discuss in more detail the commercial results.

Thank you, George. We were pleased with the continued execution of our commercial strategy in Q1. We remained focused on growing our leadership in the MS market, with a goal of maximizing our total patient share across our therapies. The launch in the U.S. of TECFIDERA represents, obviously, a very exciting addition to our MS franchise. During the quarter, we experienced continued strength across our products, with AVONEX and TYSABRI showing -- both showing solid revenue growth. AVONEX unit and revenue growth were strong as this important product remains a leading first-line therapy for MS patients. First quarter global AVONEX revenues increased 13% versus prior year, and we continue to see competitive share gains for AVONEX within the ABCRE segment across multiple markets. The AVONEX performance continues to be driven by strong commercial execution; maintaining strong share of voice in this highly competitive and promotionally sensitive segment of the market; as well as the benefits of the AVONEX PEN which offers improved patient convenience, which we believe is an increasingly important differentiator within the injectable segment. TYSABRI first quarter global revenues increased 9% versus the prior year. In an increasingly crowded MS market with more options available to patients, we believe TYSABRI's powerful efficacy profile continues to resonate with neurologists. We are continuing to educate the market about TYSABRI risk stratification and believe this is supporting earlier use of TYSABRI in appropriate patients who need high efficacy. The majority of patients starting TYSABRI are JCV antibody negative, and we expect favorable longer-term retention rates for these patients. Moving on to TECFIDERA. We're still in the initial days of the U.S. launch and it's premature for us at this point to comment on specific launch metrics. However, we have been encouraged by the early signs of physician and patient interest in this product. For TECFIDERA, we are focused on 2 immediate objectives: first, to create broad promotion and education to physicians; and second, to facilitate access to patients starting on TECFIDERA. Our prelaunch planning was comprehensive, and I'm very pleased with the speed and quality of execution by the U.S. commercial organization over the last several weeks. Regarding our promotional efforts, while data indicates U.S. physician awareness of TECFIDERA is high and perceptions of the product are strong, we believe a successful launch will require broad and repeated promotional and educational efforts. And we believe we are well prepared to accomplish this in the coming weeks and months. Our sales force is fully trained with approved promotional materials and call plans, with broad reach to target neurologists. We have also completed training of physician speakers and have a robust schedule of educational programs. Concerning our efforts to facilitate access for patients starting on TECFIDERA, we are executing to plan. Within days of approval, the product was shipped to our specialty pharmacy partners and was ready for patient starts. Our Advantage [ph] Care teams are beginning to engage with payers to secure formulary access and reimbursement, a process that we expect will take 6 to 12 months, as is typical for products of this type. Prior to inclusion on payer formularies, we believe that many payers will, again as is typical for products of this type, require prior approvals and step edits, to place some additional burden on physician offices and patients. These hurdles can cause the start of therapy to be delayed in some patients by 1 to 2 months. At steady state, we think it will take weeks for patients to get on-drug. We believe our internal patient services group, working in conjunction with pharmacy partners, is well resourced to provide assistance to physician offices to get patients started on therapy. For patients, we have comprehensive financial assistance programs in place, including co-pay assistance and a free drug program for those who are uninsured. We continue to prepare for broad commercialization of TECFIDERA outside the U.S. Our plan assumes that the initial European launch will occur in Germany after the anticipated European Commission approval. Additional European country launches are expected to occur throughout 2014, as other EU countries generally require approximately 6 to 12 months to go through the reimbursement process. In these x U.S. launch countries, we already have key marketing and market access resources in place, and we plan to add field resources in anticipation of each country's launch. We continue to be very excited about the long-term potential for TECFIDERA. We believe this product will be appealing to a broad segment of patients and physicians and that, in the future, TECFIDERA will become the leading oral in the MS market. We also recognize that we are competing against an increasing number of therapy options and that MS is a conservative market where many patients will persist on their therapies for extended periods. Patients typically see a neurologist every 6 to 12 months, with treatment decisions primarily driven by patients who relapse, at a rate of 10% to 15% a year. Given these factors, success for TECFIDERA will require sustained execution. We believe that we are well resourced and well prepared to do just that. I'm very pleased with the execution by our commercial team bringing this important innovation to patients who need it. With that, I will hand the call over to Doug.

Thanks, Tony, and good morning, everyone. The first quarter has been busy, with progress on the clinical and regulatory front and further progress building out our research capabilities. Starting with important advances on the regulatory front. We received notification of a positive opinion from CHMP for approval of TECFIDERA, and both FDA and Health Canada approved TECFIDERA with first-line indications for broad spectrum of patients with relapsing forms of MS. As expected, the U.S. TECFIDERA label reflected the strong efficacy, favorable safety profile and limited monitoring requirements for a broad population of patients with relapsing forms of MS. Beyond the initial CBC, which should be taken within 6 months prior to starting therapy, and blood tests annually or as clinically indicated, there's no additional required monitoring for patients. Our warnings and precautions section have 2 items of note: lymphopenia, which can be monitored through a simple blood test, this testing should fit into the typical cycle of MS patient management; and flushing, which is usually mild to moderate and, we believe, usually improves or resolves over time. Taking it with food may help mitigate flushing as well. Switching gears to our hemophilia franchise. The BLA submission for our long-lasting factor IX has been accepted by the FDA with a standard review timeline. We also submitted our regulatory package for our long-lasting factor VIII to the FDA and for factor IX to Health Canada. We're working on our factor IX submission to the Therapeutic Goods Administration of Australia and factor VIII to Health Canada. During the quarter, important data on our diverse neurological portfolio were presented at the American Academy of Neurology Annual Meeting with 50 company-sponsored platform and poster presentations. We also presented for the first time the detailed results of our pivotal trials for long-lasting factors VIII and IX at the European Association for Haemophilia and Allied Disorders conference, also referred to as EAHAD. One important presentation I want to highlight from AAN was data from the pivotal Phase III study of PLEGRIDY or peginterferon beta-1a. PLEGRIDY met all primary and secondary endpoints after the 1-year cutoff of the 2-year study. PLEGRIDY significantly reduced MS disease activity, including relapses, disability progression and brain lesions compared to placebo at 1 year. We believe that the safety and tolerability will be viewed favorably. The overall incidence of adverse events were similar among the PLEGRIDY and placebo groups, with the most commonly reported AEs being redness at the injection site and influenza-like symptoms. We plan to file for regulatory approval with the FDA and European Commission by midyear for an approval decision next year. At the EAHAD meeting, we reviewed the pivotal study data from our factor VIII and IX programs, showing that these clotting factors had extended half lives. Neither molecule showed any evidence of inhibitor form development. The data from both of our studies suggest the potential to transform the treatment of both hemophilia A and B by enabling patients to maintain protection from bleeding episodes with the benefits from less frequent injections. Turning now to our early-stage pipeline. Data with our anti-beta-amyloid antibody, BIIB037, from our Phase I single ascending dose study was presented at the 11th annual conference on Alzheimer's and Parkinson's disease and suggests that we could safely administer intravenous doses as high as 30 mgs per kg without evidence of vasogenic edema, a dose-limiting toxicity observed with other anti-beta-amyloid antibodies in development. The preclinical data comparing the binding and biological properties of BIIB037 with other beta-amyloid antibodies show that our antibody may have a unique phenotype, recognizing primarily the insoluble fibrillar form of beta-amyloid with little binding to vascular-associated forms of beta-amyloid. In transgenic animal models, BIIB037 showed potent and dose-dependent removal of plaques. We're currently conducting a multiple ascending dose study in patients with prodromal and mild Alzheimer's disease to assess the degree of plaque removal by imaging. I'm also pleased to report that we've made a key hire in our efforts to reinvigorate our discovery in cell biology programs. Dr. Spyros Artavanis-Tsakonas, who's been taking a sabbatical from the Department of Cell Biology at Harvard and acting as our CSO, will be joining us permanently. Spyros's scientific reputation, his role in the start-up of several biotech companies, as well as his deep network of academic colleagues will be an important addition to our efforts to create a world-class discovery capability. This is a great addition to an already solid R&D team. Spyros will be working closely with Al Sandrock and the rest of the R&D team to advance our pipeline. As we move forward, I look forward to providing you key top line data readouts from our pivotal and early-stage program trials. With that, I'll now pass the call to Paul Clancy, our Chief Financial Officer.

Thanks, Doug. Our GAAP diluted earnings per share were $1.79 in the first quarter. The differences between our GAAP and non-GAAP results are outlined in the earnings presentation. They include $49 million related to the amortization of acquired intangibles, $2 million in fair value adjustments for contingent consideration and $4 million related to stock compensation expense. This was partially offset by the tax impact on these items. Our non-GAAP diluted earnings per share in the first quarter were $1.97. Included in these results was the benefit of an unusually low effective tax rate this quarter. This was driven by a few discrete items which added approximately $0.17 to our EPS. I'll talk in more detail about this shortly. Let me now walk down the P&L. Total revenue for the first quarter grew 10% to $1.4 billion. Q1 AVONEX worldwide revenue was strong, growing 13% to $746 million. Q1 global unit AVONEX volume increased 4% versus prior year. In the U.S., AVONEX revenue grew 23% in Q1 to $491 million, U.S. unit volume increasing 8% versus prior year. As we shared last year, units in the first quarter of 2012 were unfavorably impacted by channel dynamics. This allowed for a favorable comparison this year. U.S. inventory for AVONEX in the U.S. ended at just over 2 weeks this quarter, a modest build. Internationally, Q1 AVONEX revenue was $255 million, a decrease of 2% compared to the first quarter of 2012. International AVONEX revenue was unfavorably impacted by the timing of shipments to Brazil, a tender market where we recorded no sales this quarter. Foreign exchange and hedging impact also weakened AVONEX revenue by approximately $5 million versus 2012. TYSABRI worldwide in-market sales were $456 million in the first quarter, up 15%. We recorded TYSABRI product revenue of $312 million in Q1. In the U.S., first quarter TYSABRI product revenue was $113 million. The first quarter benefited by approximately $11 million due to an increase in inventory levels at our distributor related to the asset purchase. Q1 international TYSABRI product revenue was $199 million. TYSABRI product revenue was negatively impacted by approximately $14 million of deferred revenue in our Italian affiliate. Similar to AVONEX, TYSABRI did not have tender sales in Brazil, impacting revenue by approximately $4 million this quarter. The impact of foreign exchange and hedging for Q1 softened revenue by approximately $2 million for TYSABRI versus the prior year. FAMPYRA revenue was $23 million. And in this past quarter, the final price was established in Germany, and we recorded a favorable adjustment of approximately $8 million. U.S. RITUXAN sales were $865 million in the first quarter, an increase of 9%. RITUXAN sales benefited from a Q1 inventory buildup, in addition to continued uptake in the first-line maintenance lymphoma setting. In the quarter, Genentech received an arbitration ruling in its dispute with Hoechst. This resulted in a reduction of approximately $42 million, of which $4 million impacted our U.S. profit share and $38 million impacted rest-of-world royalties. As a result, our U.S. profit share and expense reimbursement was $282 million for the first quarter and royalties and profit-sharing sales of RITUXIMAB outside the U.S. were a loss of $17 million. The result was $265 million of revenue from unconsolidated joint business in the first quarter. Royalties were $33 million for the first quarter. And we also recorded $22 million of corporate partner revenue, including $13 million from our ZEVALIN supply agreement. Now turning to the expense lines in the non-GAAP P&L. Q1 cost of goods sold were $134 million or 9% of revenues. Q1 R&D expense was $283 million or 20% of revenue. The lower-than-typical run rate was primarily driven by the discontinuation of the dexpramipexole program and no business development activity during the quarter. Q1 SG&A expense was $351 million or 25% of revenues, an increase of 17% over last year. This was driven by costs associated with promotional planning and sales force development for TECFIDERA. Continuing down the P&L. Our collaboration profit sharing line totaled $85 million expense for the quarter. Other income and expense was a loss of $14 million in Q1. Our Q1 non-GAAP tax rate was 14%. This unusually low tax rate was driven by 3 factors. First, we received updated technical guidance from the IRS concerning our U.S. federal manufacturing deduction. This was related to our unconsolidated joint business for the years 2005 through 2012. Based on this guidance, we reevaluated our tax position and recorded a net benefit of $33 million related to these prior years. Second, we experienced favorability due to the 2012 reinstatement of the federal R&D tax credit. And finally, we benefited from participating in the Massachusetts 2012 Life Sciences Tax Incentive Program. These discrete items contributed approximately $0.17 to our non-GAAP diluted EPS. In the first quarter, our weighted average diluted shares were 238 million. We ended the quarter with $3.6 billion in cash and marketable securities, of which we deployed $3.25 billion to fund our asset purchase of Elan's interest in TYSABRI early in the second quarter. This brings us to our non-GAAP diluted earnings per share, which were $1.97 in the first quarter. Now let me turn to our full year 2013 guidance. We're updating our guidance to reflect the completion of the TYSABRI asset purchase, which closed on April 2, and updates to our core business. I'll walk you through the various components and, where applicable, break out the impact from changes to our core business versus changes to the TYSABRI economics. We expect total revenue growth of approximately 16% to 18% versus prior guidance of 10%. Our revenue assumptions on our core business remain essentially unchanged. Included in this guidance is an additional $425 million to $475 million from the TYSABRI asset purchase. Moving to the expense lines on the P&L. We anticipate cost of goods sold to be between 13% and 15% of sales. This increase relates to the TYSABRI contingent payments owed to Elan, which will be recorded in cost of goods sold. We'll also now book 100% of the third-party TYSABRI royalties through COGS. Also note we'll no longer be using the collaboration profit sharing line item on the P&L. R&D expense is expected to be between 22% and 23% of sales. Our balance-of-year R&D forecast now includes up to $75 million earmarked for potential new early-stage business development opportunities. We continue to be focused on building our pipeline, with an emphasis of adding high-quality Phase I and Phase II assets. SG&A is expected to be approximately 24% to 26% of total revenue. We continue to see 2013 as an investment year as we build out the commercial efforts for TECFIDERA, including countries outside the U.S., and prelaunch efforts for hemophilia in the U.S. We continue to expect SG&A leverage post 2013. Our effective tax rate in 2013 is expected to be between 22% and 23% of pretax income. For the balance of year, our effective tax rate is expected to be between 24% and 25%. As a result, we anticipate non-GAAP earnings per share results between $7.80 and $7.90 and GAAP EPS to be between $6.69 and $6.79. We anticipate ending 2013 with a cash balance greater than $1 billion, of which the majority will be located inside the U.S. So the primary updates to our 2013 guidance are driven by 3 factors: the asset purchase of TYSABRI, the discrete tax benefit and solid performance of our core business experienced in the first quarter and the $75 million earmarked for potential new business development activity, as the strong results this quarter has allowed for reinvestment in the business. We're excited about the remainder of 2013 in setting the foundation for what we hope to be strong earnings growth over the next number of years. I'll turn the call over to George for his closing comments.

Okay. Thanks, Paul. So in summary, our core business is doing remarkably well. The TECFIDERA launch is well underway in the U.S. And now with 3 approved MS products in the U.S., TECFIDERA, TYSABRI and AVONEX, we believe we have the portfolio that makes us the global leader in the treatment of MS. What's important to us is to drive leadership across the entire franchise. We believe that, with the leading injectable, the leading high efficacy therapy and potentially the leading oral drug, we're well positioned to do just that. So I believe that, with the accomplishments that we've made since the beginning of the year, we're on a very promising trajectory for the remainder of this year and for years to come. We have 3 more potential new products coming forward in the next 18 months: PLEGRIDY and our long-lasting factors VIII and IX. We're focused and working hard to ensure that we complete the registration processes in a timely fashion and successfully launch each of these late-stage products. We're making progress with our mid-stage pipeline as well and also the important work of keeping the sustainability of the pipeline going. We expect data readouts for daclizumab in 2014, TYSABRI and SPMS in 2015 and potentially SMNrx in 2016. During that time frame, we expect to have meaningful data readouts from our Phase II compounds and proof-of-concept data from several other compounds as well. So we believe that we're on track to continue to bring important new medicines to patients in areas of high unmet need and further ensure that we have major value drivers going forward. So before I end the call, I'd like to note the enthusiasm and the passion that runs throughout our organization in terms of the work we're doing for patients. Biogen Idec has been around for a long time. We're the oldest independent biotech company in the world. We've had a great run off the strength of our science, our development group is world-class and we believe that we have a great commercial outlook ahead. And now for our patients around the world and our shareholders, we need to continue to deliver, and we're committed to do just that. We're working hard to enhance our internal R&D and pipeline, and we also expect to make some additional investments through our BD group this year to further enhance the pipeline and provide additional value down the road. So I'd like to thank all of our employees whose hard work, dedication, makes these accomplishments possible. And at this time, we'll open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Geoffrey Porges from Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: Probably, the best question would just be to start off with a little more color on TECFIDERA. I know you don't have any sort of firm metrics, but could you give us a sense of whether the patients that are starting are coming new to treatment or whether they're prior treatment failures, whether they're switches or have been off treatment previously. And then perhaps a little color on what their best alternative treatment was: Are they patients that might otherwise have been considered for TYSABRI? Or are they straight out of the ABCR pool?

Thanks, Geoff. It's Tony. So look, early days, the short answer is we're seeing patients come from all those different categories. It's probably a little early to comment on any pattern that's developing on that front, but as we said, we're encouraged with the early signs.

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

My question is -- now that TECFIDERA launched, I wanted to drill down a little bit on the issue of NAS in Europe, if I might. I think you guys have said in the past that you think that TECFIDERA is entitled to a full regulatory data protection independently of whether TECFIDERA would qualify as an NAS, based on the fact that TECFIDERA hasn't been previously approved as a single component medicinal product. So I'm wondering if you could explain to us what that alternative path to regulatory data protection is. I understand, you have a patent allowance there, but I'd really appreciate some clarification on that, if that's possible.

Sure, Geoff. Or first, thanks for your -- I'm sorry. Thanks, Mark. On the regulatory front in Europe, we continue to believe that we're entitled to the 8-plus-2 years of data exclusivity. Obviously, we've been in -- we're in the middle now of discussions with the European regulatory authorities. I don't want to go into all the details of that on the call. I think it's just general good practice not to discuss the details of our interactions with regulatory authorities. But we continue to believe that we are entitled to that data protection.

Your next question comes from the line of Ravi Mehrotra from Crédit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: Questions related to TECFIDERA. Firstly, in CONFIRM and DEFINE, can you remind us whether you did lymphocyte subset analysis to understand which subsets were affected and which were relatively spared? And specifically, do you know whether peripheral effector memory T-cells were spared? And for Tony, I'd love to get your view on the potential warehousing that may or may not have occurred within the MS market ahead of TECFIDERA.

Yes, Ravi, this is Doug. Thanks for the question. And with respect to the nuances of different T-cell subsets, we didn't explore that in the study. We looked strictly at lymphocyte counts, white cell counts, as sort of a monitoring measure. We looked at that pretty intensively, as you know. And that data has been presented at several different forums and published in the New England Journal. I think the most important take-home message from those studies is that we did see a drop in lymphocyte and white cell counts that sort of trended downward during the first 3 to 6 months on treatment and then plateaued and stabilized for the remainder of time that patients were on study drug. There was a low percentage of patients that met our criteria for lymphopenia, which was any single count that was below 500. That was, about half of the 6% of the patients that met the criteria of lymphopenia only had a single count that was below 500. So all of the patients continued on study drug throughout the course of the study. We didn't stop anyone. And as you know, there were no opportunistic infections and there was no increase in infection risk in the patients that were treated with study drug. So that's basically the bottom line with respect to lymphopenia.

Thanks, Ravi, for the question. So I've been publicly skeptical of the term "warehouse," as you know, so I appreciate your asking that. But look, that's in the spirit of how do you actually define that term in the context of the rhythm of this market. And having said that, we've always believed that there would be some pent-up demand and early interest in this, and that's a function of a great label and a good product profile. So as we've said, the early indicators are encouraging. We'll see how that plays out in the coming weeks and months. This is a marathon, not a sprint. We're focused on getting out and promoting and getting off to a strong start, but it's really about building a sustainable trajectory. Ravi Mehrotra - Crédit Suisse AG, Research Division: Understood. George, do you think the guest has left the party yet?

Apparently not.

Your next question comes from the line of Robyn Karnauskas from Deutsche Bank.

So quickly, maybe you can give us an update on when do you think the Italian TYSABRI dispute might be resolved. And just clarify: I know -- I think, last quarter, you said it was included in your guidance. Can you clarify whether or not a lack of Italian -- the lack of the dispute resolution is included in your guidance? And then second, regarding similar dynamics in Europe, you mentioned there was an impact from Brazil. How are x U.S. units of AVONEX doing if you exclude the Brazil impact?

Yes, Robyn, this is Paul. Let me take the first part of your question with respect to AIFA and the Italian revenue deferral. It's frustrating for us as well. We are hopeful that it gets resolved this year. It is included in our guidance. If it doesn't get resolved, we'll work hard to try to offset that, but it's included in our guidance. What specifically is included in our guidance is that we get back to booking something in terms of a full price, and what's not included in our guidance is any of the deferred revenue accruing back into the P&L this year. And I think that's kind of a "middle of the road" assessment of the various outcomes. And I just would also note that there'll be accounting judgments and accounting treatments that are applicable depending on, hopefully, when this gets resolved and negotiated through. With respect to the second part of your question, excluding Brazil, kind of if it was adjusted for Brazil, units were up, I believe, in roughly the low-single-digit range on an AVONEX year-over-year rest of world basis. We were comparing to a very strong Q1 2012 for AVONEX last year. There's always -- even outside of some of these tender markets, there's always some lumpiness in distributor markets in other geographic regions, and tender markets as well. Thanks for the question.

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

George, appreciate your comments on the PML situation upfront. Really like the feistiness. On TECFIDERA, back in January, you guys -- obviously, there's a lot of enthusiasm around the launch of this product, but it seemed that you guys had tempered your enthusiasm a little bit because one of the unknowns was how well patients were going to stick to therapy in the first month. So I'm just wondering if there's any anecdotes or data points or metrics that you can share on the early launch here with respect to persistency or compliance to therapy that sort of shifts your prior conservatism one way or another?

Yes. This is George. Look, I don't think we've tempered our enthusiasm. I mean, I think we have had a fairly consistent view of TECFIDERA now for quite a period of time. We believe that it will be the oral drug. We were and are being realistic about the uptake rate. It's been 3.5 weeks since it's been introduced onto the market, so I think it's a little early to comment on persistence, right? And so -- but we remain very enthusiastic, and there's no reason not to be, about the prospects for the drug. We have a great label. We have a great product profile. And our sales force is trained and ready to go, and we're about to start ushering the guests out at the door.

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

Another TECFIDERA question for either Tony and/or Paul. We've noticed that there's a lot of buzz in the patient community about the QuickStart Program and the $10 co-pay assistance plan. Could you talk about how each of these things are working? And maybe Paul could discuss the impact on revenue recognition and gross-to-net pricing, that sort of thing.

Yes, thanks, Eric. It's Tony. So we have a co-pay assistance and other financial assistance programs which are, I think, very good but typical for the industry. Patients who have -- at certain income levels can get assistance with co-pay. We obviously also have a free drug program, et cetera. We also have a program with our specialty pharmacies that will allow patients to get started on therapy during the process of insurance adjudication, which, it may take a number of weeks.

Yes, and then just to add, Eric, it will present a little bit of noise early in the launch in terms of the gross-to-net. Obviously, patients that get on-drug quickly, those that are judiciously pointed over to the early start program, won't be paying patients, or won't be paying product. So that will affect it. We do see in the U.S. the gross-to-net to be a little bit more favorable than our MS therapies. There's a lot of dimensions to the gross-to-net, but one of the dimensions within gross-to-net is obviously the government discounts, which has been a function of CPI over the years for a portion of those. So at a more steady state in the U.S., we should see kind of a favorable gross-to-net. And then a similar but different -- not a QuickStart, a similar dynamic could happen in some of the international markets as well.

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

I think that all -- a lot of people are looking at third-party data tracking for TECFIDERA. And obviously, I know there's a limited amount of data out there. But is there anything you can comment about whether or not we should even be looking at this data; whether it should track similarly in terms of accuracy or capture rates with regards to AVONEX, which I think we can all agree is fairly consistent and accurate. Are they through the same distribution channels? Is there anything different about that with AVONEX? And anything you can comment about third-party data?

Yes. So again, early days to comment on the details of IMS or other. We are not blocking IMS. I don't know what the capture rate is in IMS at this point. That's something that we'll obviously sort out over time or a couple of weeks in. Look, we think, over time, IMS should become a reasonable proxy for reality, as it is with AVONEX. On a weekly basis, they can be a little bit lumpy from time to time, but on a monthly basis, we think, with a mature product like AVONEX, it's a reasonable proxy. We think, at some point, that's likely to be the case with TECFIDERA.

Is it all through the same distribution channels, generally?

Similar. This is -- our distribution channel is, again as is typical for these products, largely specialty pharmacy, broad based. There'll be some differences from AVONEX. But similar, yes.

I'd just reiterate Tony's point that our -- we don't know, right, the answer to that one as it relates to your specific question for TECFIDERA. Our experience, as it relates to AVONEX, is a given week, there's a signal versus noise issue, but when you look at trended data, it's actually not too bad to look at. And I think that's our view of the competitive therapies as well.

Your next question comes from Geoff Meacham from JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: I've got a couple on TECFIDERA. So I know it's early, but are CBC counts being monitored more closely versus, say, TYSABRI or AVONEX or any other oral? In terms of the baseline, is there sort of a threshold that physicians are settling in at for TECFIDERA? Or is this not even part of the conversation? And I have one follow-up on reimbursement.

Yes, I mean, I mentioned the monitoring requirements in my statements, which are pretty minimal. It's a CBC within 6 months of a starting dose of TECFIDERA and then yearly thereafter or at the discretion of the physician. So it's a fairly -- I guess I'd characterize it a fairly light set of monitoring requirements based on the label that we have. And I think that that's certainly supported by the data that we've presented to regulators. We worked very closely with them to define what the appropriate monitoring frequency should be, particularly with respect to lymphocyte counts, as we've discussed. And I think we feel comfortable with where that's come out. And it's fairly straightforward and it fits right into the rhythm of patients coming back to see their treating physicians on sort of an annual basis.

Your next question comes from Thomas Wei from Jefferies. Thomas Wei - Jefferies & Company, Inc., Research Division: Just a couple of questions, one on TECFIDERA and the other one on the guidance. So I'm just trying to understand the TECFIDERA prescriptions for the first full week, in the IMS data. I guess I'm surprised that the average prescription size is 30 days even though patients should be starting with the 7-day prescription at 120 milligrams twice a day. So how should we interpret that? Is that because people are getting that dose as part of the free program and it's not being captured as a script? Or are doctors actually writing 7 days at 120 milligrams and then 21 days at 240 milligrams? Or sometimes, what we've seen actually is that there are patients who are actually on a clinical trial and in long-term extension who then transition off the trial and start getting drug right away, which would obviously mean a very different interpretation of these early script data. And then the guidance question is just on Slide 28. You referred to an $0.18 impact from the core business, but when you look at the changes on a line-by-line basis, on the slide before, it doesn't seem like any of those are related to the core business. So I just wanted to understand where that $0.18 positive impact was coming from related to the core business.

Thomas, I'll take the second part of the question, and Tony will take the first part. Just the reconciliation on the guidance, the guidance is driven by the asset purchase, the earmarked business development reinvestment and then the kind of upsides in tax and then the core business. Most of that, our assessment of the core business upside, is in Q1. So we just had solid performance kind of a little bit of everything around the clock on the little things on the P&L. AVONEX sales were very strong, we kind of had some benefit of the FAMPYRA deferred revenue, et cetera, as I had outlined in my conversation.

Thomas, we believe that the product is being prescribed per the label, with – those physicians are writing for the titrated dose, which is recommended. Frankly, I don't understand the inner workings of how IMS may be capturing that as 30 versus 14 day. I can't comment on that.

Your next question comes from Brian Abrahams from Wells Fargo.

This is Matthew Andrews calling in for Brian. One more on TECFIDERA. Can you give us your thoughts relative to the FDA's post-marketing requirements, in particular this abuse potential study that you have to conduct? What's the rationale? What's the agency looking for? And that's it.

I wouldn't read too -- this is Doug. I wouldn't read too much into that beyond the fact that it has become somewhat standard practice to run studies like that with newly approved medicines. So I think, if you look at our post-approval commitments, they are what I would characterize as very standard. And that particular study you called out has become a very standard part of the post-marketing commitments for any new drug that's approved.

Your next question comes from Terence Flynn from Goldman Sachs.

Just wondering, first -- and apologies, I hopped on a little bit late. But in terms of the new guidance. So if I look at what the delta is on an absolute revenue basis from your old guidance to your new -- the midpoint of your new guidance, it's about $380 million. But yet in the slides, you were calling out, specifically on TYSABRI, $425 million to $475 million incremental revenues. So just wondering what the delta is there between those 2 pieces. And then was wondering, longer term, if you can provide us on any update in your -- on your thoughts on capital allocation here post the approval of TECFIDERA.

Terry, I don't think there's anything magical to the delta. The revenue guidance is really driven by the TYSABRI asset purchase in bringing in the full 100% in the United States for the last 3 quarters of the year. My guess is that the delta that you're kind of referring to there is simply rounding or something like that, using different -- the 10% and the 17%. So I don't think there's really anything more to it than that. I think the readthrough on the top line guidance is it's driven by TYSABRI. We will obviously -- it's early days for TECFIDERA, and we'll obviously kind of monitor that as we walk through the year. We are going to be -- I think we're in a -- with respect now to capital allocation, I think we -- the deployment in the, early in the second quarter obviously is -- was a big deal. Of note also in the first quarter, we paid off our $450 million -- paid off $450 million of the 2013 notes that came due. And I think what we will now be spending a lot more time about -- thinking about, the next 5 years of capital deployment. And essentially, I think our order of priority certainly is strategic deployment on Phase I, Phase II assets that has proved extremely good for the company, to build sustainable pipeline and sustainable growth engine, and then we'll look for various ways to return capital to shareholders if the -- if we have excess cash.

Your next question comes from Marshall Urist from Morgan Stanley.

So a TECFIDERA question for me. Just wanted, Tony, if you could dig in a little bit more on your comment about reimbursement. I know you referenced some step edit and everything else. But just wanted to get a little bit better sense of that process. And I guess, specifically, how does that really differ from normal course of business from what you typically see for other -- for your other MS products?

Yes, so nothing unusual, I think, for products of this type and in this category. Look, we have a managed care team that's out engaging with payers, to talk about formulary inclusion. That includes medical discussions, economic discussions, that unfolds over several months. So that's all planned and underway. In the short term, the payers in this category, and this has happened for the other new entrants, typically will ask for some kind of prior authorization or step edit. That requires some paperwork and justification from the physician office. So it is an additional hurdle that takes place while you are trying to get on formulary. We -- again, with our specialty pharmacy partners and our internal resources, we are working with physician offices to help them get through that additional step and get patients on therapy. So different than AVONEX and TYSABRI in that it's a launch product and it's not at steady state, obviously. So we have this additional hurdle but not different from other MS products and not, frankly, other specialty products these days.

Your next question comes from John Sonnier from William Blair. John S. Sonnier - William Blair & Company L.L.C., Research Division: Just a quick one on PLEGRIDY. I think a question that patients and treaters are going to want to know is, how this drug looks relative to the shorter acting? And it does beg the question, do you guys have plans to run a non-inferiority study against either Rebif or AVONEX?

John, this is Doug. No plans to do that study at the moment, the head-to-head comparison non-inferiority study that you just mentioned. And as far as the profile of the drug, I think, obviously, we were pleased to see the efficacy in terms of ARR reduction in the sort of mid- to upper-30% range, which I think places it squarely into the high end of the range for an interferon therapy. Tolerability-wise, as I mentioned, what we saw was some injection site reactions, which are not unexpected with a subcu-administered medication; and flu-like symptoms, which are, again, consistent with what we've seen with the other interferons. Those tend to be clustered around the time of dosing. So with the less-frequent dosing, we think that this will be a lower treatment burden for patients with respect to flu-like symptoms. And coming back to the efficacy parameters, I think the other interesting and somewhat surprising observation was the impact on disability progression that was seen in both of the treatment arms, both twice a month as well as once a month. So I think the efficacy data is very strong. And I think the tolerability data, with respect to AEs, there's nothing really surprising and, what I'd say, is non-interferon-like in terms of what was observed. So pretty pleased with those results. I think it'll position the product very well.

Your next question comes from the line of Joel Sendek from Stifel. Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division: I have a question on SMNrx and then on FAMPYRA as well. So first of all, on SMNrx, I'm wondering if you can give us some sense as to the timeline for this and whether you -- and how aggressive you'll be in going after Type 2, 3 patients, which I think is the larger patient group. And on FAMPYRA, just quickly, what price did you -- were you able to negotiate in Germany?

Do you want to take the FAMPYRA one?

Yes, Joel, the FAMPYRA price is right around $2,000. So that's the price that's going forward in the P&L at this point.

And with respect to SMNrx, again, our working assumption right now is that, if the trials were to proceed as we envision them today, and this would be II -- Phase II, III type studies that we'd be looking at, data readouts probably in a 2016 time frame, as George alluded to in his comments. We will be looking at Type 2 and 3 patients. And in fact, the data that we presented thus far, Isis presented at the AAN meeting, is a combination of both the Type 2 and Type 3 patients. We're obviously interested in the Type 1 patients as well where, as you can imagine, the sort of medical need is the greatest. We -- Isis just announced that they'll be starting an infantile study, which will be patients with Type 1 disease, the most severe form of the disease. And that's largely a PK study to confirm that the sort of exposure in these neonates is very similar to what we see in the older patients that we treated in the studies that have been ongoing to date. So the program is moving quickly. We're having a lot of dialogue with the regulatory agencies because this is somewhat uncharted territory with respect to end points and study design issues. But we've had good dialogue back and forth, and our anticipated timeline would be to actually have data that we could file, assuming it's positive, in a broad cross-section of Type 1, 2 and 3 patients in the 2016 time frame.

This concludes the Q&A portion of the call. I turn the call back over to the presenters for closing remarks.

Okay. Look, thanks for all for calling in today. And we're going to get back to work, and we'll talk to you next quarter. Thanks.

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