Biogen Inc. (BIIB) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Idec Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. Claudine Prowse, you may begin your conference.

Thank you. Thank you, Tiffany, and welcome to Biogen Idec's Second 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'll 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 CFO, Paul Clancy. I'll now turn the call over to George.

Okay, thanks, Claudine. Look, this is a very strong quarter for Biogen Idec, and I believe it represents the beginning of a new era that includes increased economic participation in TYSABRI, the launch of TECFIDERA and the anticipated launch of 3 additional products next year. So revenues for the quarter were $1.7 billion, up 21%, and non-GAAP earnings were $2.30 per share, up 26% compared to the second quarter of 2012. These great results stem from the revenues from our entire portfolio of MS products, including AVONEX, TYSABRI and now TECFIDERA. AVONEX continues to be a very strong part of the business. We're still early in the launch of TECFIDERA, but AVONEX appears to be holding up well in this new competitive environment. And we believe that the interferon franchise will be strengthened even more next year with the anticipated launch of PLEGRIDY. Although TYSABRI had a somewhat challenging quarter, in part, due to the introduction of TECFIDERA and also, the financial dynamics that Paul will discuss later in the call, we believe that the efficacy of TYSABRI will result in increasing usage in the future. We believe the recognition of the importance of treating MS aggressively and early, the increasing in understanding of risk stratification, the high level of efficacy and the potential of TYSABRI in other indications all bode well for its long-term growth, and we're optimistic about the future of TYSABRI. The launch of TECFIDERA in the U.S. has gone very well, which we believe reflects a broad recognition among physicians and patients that this is a unique product. According to IMS, TECFIDERA outperformed all other MS drugs in the first 3 months after launch. We believe that the excitement about TECFIDERA stems from a combination of factors, including its product profile as an oral therapy with strong efficacy and solid safety; our reputation in, and understanding of, the MS market; and very strong execution on the part of our U.S. commercial organization. We overcame some early logistical challenges that resulted from the unexpectedly high early demand, and we now believe that we're on a very solid trajectory and are excited about the future of the drug. So in the U.S., we're off to a great start, and recent approvals in Canada and Australia just add to the momentum. TECFIDERA is an exciting product that, we believe, has the potential to shift the paradigm of treatment for MS patients. So now let me comment briefly on the E.U. situation. As you know, on May 30, we announced that our plans to launch TECFIDERA in Europe had been delayed to allow us to make TECFIDERA's entitlement to regulatory data protection clearer at the time of launch. At the time, we said that we believe that we were entitled to regulatory data protection, and we continue to believe so. Our process to clarify regulatory data protection is moving along, but it's taking a little longer than we thought it would when we made the announcement on May 30, and it's difficult to handicap the precise timing or the potential outcome of our efforts. So we recognize that any delay of a valuable therapy like TECFIDERA is frustrating for patients, for physicians, our shareholders. We'd like to be more transparent about the process. We believe that would not be in all of our collective interest and could impact our ultimate success, and so we're not going to give any more details at this time. We do have patents covering TECFIDERA in E.U., and we believe that they're strong. However, in Europe, it's more difficult than it is in the U.S. to obtain injunctive relief that would prevent others from free-riding on our investments while we enforce our IP. Consequently, we believe that it is important to launch with both intellectual property and regulatory data protection, and we're working to achieve that outcome. So let me now move on to our other products. In the second quarter, we also made excellent progress toward the potential launch of 3 additional therapies over the next year. Our PLEGRIDY marketing applications were recently accepted by both the FDA and EMA. If approved, we believe PLEGRIDY could provide patients an efficacious treatment option with less frequent dosing and an innovative autoinjector, which may position it as a preferred interferon treatment option. We believe that the first-line injectable products, including the interferon and Copaxone, will increasingly compete on convenience, as has been exemplified by the success of the AVONEX PEN. PLEGRIDY may have the potential to become the leading drug in this class. We expect PLEGRIDY to launch in the middle of next year in the U.S. We've also been focused on the registration of our long-lasting recombinant hemophilia product candidates, ALPROLIX and ELOCTATE, for the treatment of hemophilia B and hemophilia A, respectively. We believe that our innovative biologics have the potential to transform hemophilia care by addressing the biggest unmet need for these patients, which is a reduction in the frequency of IV injections. We believe that each of these products offers a substantial value proposition for patients and has the potential to provide improved and a reduced treatment burden. Both are under review by the FDA, and we anticipate product launches in the first half of next year. Although hemophilia is a new therapeutic area for Biogen, we believe that we are well positioned. We expect to be the first to market with highly differentiated long-lasting products. We bring great expertise in biologics manufacturing, process sciences and specialty markets commercialization. And we've built a hemophilia organization comprised of many individuals with years of experience in the treatment of hemophilia. So although the company is new to the field, our employees are not. They know the field, and the field knows them. With the anticipated approval of these products next year, we believe that we're prepared to bring important new therapies to the many patients who need them. So I'll now turn the call over to Tony Kingsley to discuss in detail the commercial results this quarter.

Thanks, George. Our commercial performance during the second quarter was strong. In Q2, we were successful in driving our longer-term goal of growing total MS patient share across our entire franchise. Q2 was the first quarter of TECFIDERA commercialization in the U.S., and we've been very pleased with the launch to date. The U.S. commercial organization planned and executed very well. As expected, there was significant physician and patient excitement about the TECFIDERA product profile. In addition, we believe the 3 months launch delay caused by the PDUFA extension and extensive media coverage led to heightened market awareness, which further increased demand for the product at launch. This pent-up demand accounted for a meaningful portion of the uptake observed during the quarter. In the upcoming quarters, we expect TECFIDERA new prescription volume to remain healthy but will moderate to more closely reflect the underlying patient start and switch dynamics of the MS market. Over 3,500 physicians have prescribed TECFIDERA today. Approximately 1/4 of TECFIDERA patients were not on prior therapy, while approximately 3/4 switched from other disease-modifying MS therapies. The source of switches appears roughly in line with the market shares of MS therapies. Early in the U.S. launch, a high number of JCV antibody-positive TYSABRI patients switched to TECFIDERA. But more recently, switching from TYSABRI has been more in line with market share. We believe that physician and patient reports of their experience with TECFIDERA have generally been favorable. While as expected, flushing and GI-related tolerability issues have been reported. From our discussions with prescribing physicians, we believe these issues are largely viewed as manageable. And we believe that very few patients, so far, have discontinued therapy because of tolerability. So after a very strong start, we continue to believe maximizing TECFIDERA performance over the longer term will require a strong and sustained commercial effort in what remains a very competitive market. And our focus has been on 2 areas: physician awareness and streamlining patient access. Our physician awareness efforts have been robust as our sales forces achieved its early goals of driving significant reach and frequency in physician calls to communicate TECFIDERA's product profile. And the early breadth of physician prescribing speaks to that. We also continue to work to improve patient access to TECFIDERA. As we expected, many plans have been aggressive with placing usage restrictions on TECFIDERA, including prior authorizations and step-edits, which creates delays in getting patients started on drug and short-term frustrations for both patients and physicians offices. Our advantage market teams are in active discussions with payers to continue to improve formulary access. On the government payer side, TECFIDERA was successfully added to the federal health care programs and is available through Medicare Part D, Medicaid and the DA. However, each Part D plan and state has its own process for updating its formulary. Turning to AVONEX. We were pleased with AVONEX Q2 performance. For the quarter, global AVONEX revenues increased 2% versus the prior year. Globally, AVONEX gained market share year-to-date within the injectable class, driven by strong commercial execution, as well as continued interest in the AVONEX PEN, as convenience continues to be a key differentiator in the injectable segment. Moving to TYSABRI. Second quarter global in-market sales decreased by 2% versus the prior year. As I mentioned, in the U.S., a significant number of higher-risk TYSABRI patients transitioned to TECFIDERA, which slowed TYSABRI growth despite the fact that we believe we are continuing to generate solid demand. During the quarter, approximately 2/3 of the patients who discontinued TYSABRI stayed within our franchise and started TECFIDERA. This creates another issue that we are well aware of and prepared for. Given that well over 1,000 higher-risk patients have transitioned from TYSABRI to TECFIDERA, we expect to see a number of cases of PML in these patients, just as has been observed in TYSABRI patients who have switched to other therapies. We believe that our competition will try to make an issue out of this, but we believe the physician community expects it. Our Medical Affairs team is having discussions with physicians, and we believe we are ready. In the E.U., we observed some softness in TYSABRI growth due to oral competition. Continued strong commercial focus on TYSABRI's high efficacy and differentiated product profile, coupled with risk stratification, remain very important to the success of this product. Overall, I'm very pleased with the execution of our commercial team and believe our MS franchise is well positioned for continued success. We have said we believe TECFIDERA will become the leading oral treatment, and we've now seen TECFIDERA's trajectory exceed all previous MS launches. As a result, we believe our MS franchise now has the leading market share, both in the U.S. and globally. We know future success is not assured, so we're focused on continuing our strong commercial execution and preparation for our upcoming launches. I'll now turn the call over to Doug to discuss our recent R&D activities.

Thanks, Tony. This has been another productive and eventful quarter for our R&D organization. We presented data at a number of medical meetings on our diverse, late-stage and Commercial portfolio while advancing our early- to mid-stage pipeline. We believe our pipeline is maturing nicely and with 3 potential new product launches in 2014 and multiple pivotal and proof-of-concept readouts expected behind those, our underlying drivers of growth continue to look solid. Our 2 product candidates for hemophilia: ALPROLIX and ELOCTATE, are hopefully our next products to reach the market. We, along with our partner, Sobi, presented over 30 abstracts and gave 10 oral presentations on these products at the International Society of Thrombosis and Haemostasis Meeting, reinforcing the value proposition that we believe each of these products may potentially bring to patients. New data highlighted efficacy and safety findings, including the control of bleeding during and after surgery and the treatment of acute bleeding episodes. Data were also presented on the ability to assay ALPROLIX levels in patients, potentially enabling customized patient dosing regimens. We anticipate data from our ongoing ELOCTATE and ALPROLIX pediatric studies in 2014. We believe positive data from these pediatric studies should enable product submissions with the EMA, and the opportunity to seek expanded labeling for pediatric populations with the FDA. During the quarter, we also presented additional new data on TECFIDERA at the Consortium of Multiple Sclerosis Centers meeting, confirming that the majority of flushing and GI symptoms were mild to moderate in nature, and demonstrating that aspirin has the potential to be effective in diminishing flushing-related adverse events. In addition, a recently published Journal of Neurology manuscript examining subgroups from the Phase III DEFINE study, demonstrated that TECFIDERA was consistently effective across a broad set of patients with different demographic and disease characteristics. It's also been a busy quarter for TYSABRI, as we continue to focus on TYSABRI's powerful efficacy as its key differentiating factor, and the JCV assay as an effective patient management tool. At the European Neurology Society meeting, we presented preliminary TYSABRI-related data, showing that JCV antibody index levels correlate with PML risk in certain patients with no prior immunosuppressant use. The index is a reflection of antibody titer, and certain patients with higher titers appear to have increased PML risk. This research may allow further refinement of the PML risk stratification tools already in broad clinical use and may allow better management of TYSABRI patients. We also submitted an application for marketing authorization for TYSABRI in Japan, and we anticipate approval in the first half of 2014. Enrollment of the Phase III ASCEND trial, evaluating TYSABRI and SPMS, was also completed in the second quarter. We continue to make progress with our mid-stage pipeline and expect 3 pivotal readouts over the next 3 years: daclizumab in 2014, TYSABRI and SPMS in 2015 and potentially, SMNRx in 2016. During that time frame, we also expect to have meaningful data readouts from our early-stage programs, including: neublastin for neuropathic pain, STX-100 for IPF, BIIB037 for Alzheimer's disease, anti-CD40 ligand in SLE, anti-TWEAK in lupus nephritis and Anti-LINGO in acute optic neuritis and relapsing MS. So we believe we're on track to continue to bring new important medicines to patients in areas of high unmet need and further ensure that we have major value drivers going forward. I'll now pass the call to Paul to discuss our financial results.

Thanks, Doug. Our GAAP diluted earnings per share were $2.06 in the second quarter. The differences between our GAAP and non-GAAP results are outlined in the earnings presentation. The primary differences include $79 million related to the amortization of acquired intangibles, $5 million in fair value adjustments for contingent consideration, and $2 million related to stock compensation expense. This was partially offset by the tax impact on these items. Our non-GAAP diluted earnings per share in the second quarter were $2.30. As has been the case over the last couple of quarters, we experienced a couple of puts and takes within the P&L. Of note was the benefit of approximately $82 million of revenue related to TECFIDERA inventory, which added approximately $0.20 to our diluted EPS. And we made progress towards settling our TYSABRI pricing dispute with the Italian National Medicines Agency or AIFA. I'll talk in more detail about these as I walk down the P&L. Total revenue for the second quarter grew 21% to $1.7 billion. Q2 AVONEX worldwide revenue grew 2% to $774 million, as unit volume was flat versus prior year. In the U.S., AVONEX revenue grew 3% in Q2 to $479 million. U.S. unit volumes decreased 5% versus prior year, partially attributable to patients transitioning to TECFIDERA. And U.S. inventory at wholesalers for AVONEX ended at approximately 2 weeks this quarter. Internationally, Q2 AVONEX revenue was $295 million, a decrease of 1% compared to prior year. International AVONEX unit volume increased 3% versus prior year. Foreign exchange and hedging impact had a minimal impact this quarter, although compared to a gain of $10 million in the second quarter of 2012. TYSABRI worldwide in-market sales were $387 million in the second quarter, down 2%. I'll point out 2 items of note: first, the U.S. was unfavorably impacted by channel swings; and second, the international TYSABRI revenue situation was unfavorably impacted by the additional expense related to AIFA. Second quarter in-market U.S. TYSABRI revenue was $218 million, an increase of 3%. Q2 U.S. unit volume decreased 5% versus prior year. Recall, during the first quarter of 2013, we increased inventory levels in anticipation of the asset transfer from Elan to Biogen Idec. This equated to in-market revenues of approximately $26 million, increasing Q1 and depressing Q2. Q2 international TYSABRI revenue was $169 million. Earlier this month, we agreed, in principle, with the pricing committee of AIFA to settle all claims related to the ongoing pricing dispute. This settlement is subject to approval by the Italian national authorities and the AIFA board, which we expect later this year. The result, from an accounting perspective, is that we have a charge in Q2 to revenue, and anticipate a benefit later this year. Specifically, TYSABRI product revenues were negatively impacted this quarter as we recorded a liability of approximately $20 million for a portion of this settlement. We recorded this adjustment as the likelihood of making a payment to settle AIFA's claims was now probable and the amount could be estimated. Given the standards for revenue recognition, the remaining portion of the settlement will be recorded upon approval as a net benefit to revenue. We anticipate recording this revenue benefit of at least $80 million in the fourth quarter. Now moving to TECFIDERA. Second quarter TECFIDERA, its first quarter on the market, was strong as we reported $192 million of revenue. While we don't plan to provide TECFIDERA patient numbers, I do want to note that the IMS data, to date, has been a good representation of unit demand this quarter. In the quarter, TECFIDERA results include an inventory build, as approximately $82 million of revenue remained in the distribution channel at the end of the quarter. Wholesalers and specialty pharmacies built inventories in anticipation of patient demand to ensure patients experienced limited disruptions in drug supply. Absent this inventory build, it was still a very strong quarter for TECFIDERA as we estimate revenue generated from underlying patient demand was approximately $110 million. FAMPYRA revenue was $17 million while FUMADERM revenues were $16 million. U.S. RITUXAN sales were $811 million in the second quarter. Our profit share and expense reimbursement from the U.S. business was $271 million for the second quarter. And royalties and profit-sharing sales of Rituximab outside the U.S. were $18 million. This resulted in $289 million of revenue from unconsolidated joint business in the second quarter. Royalties were $38 million, and we recorded $11 million of corporate partner revenue in Q2. Now turning to the expense lines on the non-GAAP P&L. Q2 non-GAAP cost of goods sold were $231 million or 13% of revenues. This increase relates to the TYSABRI contingent payments, as well as 100% of the third-party TYSABRI royalties, which are now booked through cost of goods sold. Q2 non-GAAP R&D expense was $327 million or 19% of revenues. Q2 non-GAAP SG&A expense was $430 million or 25% of revenues, an increase of 43% over last year, driven by increased costs associated with the TECFIDERA launch. Other income and expense was an expense of $10 million. Our second quarter non-GAAP tax rate was 24%. And in the second quarter, our weighted average diluted shares were 239 million, and we ended the quarter with $775 million in cash and marketable securities, bringing us to our non-GAAP diluted earnings per share, which were $2.30 for the second quarter. Now turning to our full year 2013 guidance. We're increasing our guidance, largely the result of the strengths seen early in the TECFIDERA launch, modestly offset by the impact on our other MS therapies. We now expect total revenue growth of approximately 22% to 23%. As George mentioned, given the prolongation and uncertainty of the E.U. process, we do not expect TECFIDERA E.U. revenue to be meaningful in 2013. For TYSABRI, our prior guidance had assumed an AIFA settlement in 2013. We're pleased by the recent decision and expect to record a revenue benefit of at least $80 million in the fourth quarter of this year. Moving to the expense lines of the P&L. We anticipate cost of goods sold to be between 13% and 14% of sales. R&D expense is expected to be between 21% and 23% of sales. Our balance of year R&D forecast continues to include up to $75 million earmarked for potential new business development opportunities, and up to $35 million in anticipated upfront and milestone payments in the second half. SG&A expense is expected to be approximately 24% to 26% of total revenue. We continue to see 2013 as an investment year in SG&A, building out the commercial efforts for TECFIDERA and prelaunch efforts for hemophilia in the U.S. And we continue to expect SG&A leverage post-2013. Our effective tax rate in 2013 is expected to be between 22% and 24% of pretax income. For the balance of year, we expect the effective tax rate to be between 25% and 26%, driven by a larger percentage of our revenues being generated in the U.S. As a result, we anticipate non-GAAP earnings per share results between $8.25 and $8.50 and GAAP earnings per share to be between $7.28 and $7.53. I'll turn the call over to George for his closing comments.

Okay. Thanks, Paul. This was an excellent quarter for Biogen Idec. TECFIDERA's launch has gone very well, and we believe that TECFIDERA is on its way to becoming the major drug that provides solid efficacy and a good safety profile to large numbers of MS patients. We continue to believe in the future of TYSABRI, and are working to make sure that patients and physicians understand the value that the product brings to patients in need of high efficacy treatment. AVONEX continues to do well, and we believe our interferon franchise should be strengthened even further next year with the anticipated launch of PLEGRIDY. So as we've said many times, we believe that we're well positioned in MS with leading drugs in the oral category, the high efficacy category and the injectable category. Beyond MS, ELOCTATE and ALPROLIX are now under active review, also with anticipated U.S. launches next year. We believe that these products have the potential to transform hemophilia care, and we're excited about their potential. Our pipeline continues to move forward, and we expect to have meaningful readouts of pivotal and proof-of-concept trials in each of the next several years. So we're at the beginning of a new era for Biogen Idec. We're a global leader in MS, and our goal is to strengthen our position even further, at the same time as we expand into new indications. It's an exciting time to be here. We've accomplished a lot, but we fully recognize that we have a lot of work ahead of us. We know that if we execute well, our future is likely to be bright. We're working hard, staying focused and making sure that we achieve our ambitious goals. Achievement of our goals, to date, is the result of a lot of effort and dedication on the part of all the employees of Biogen Idec, and I want to take this opportunity to publicly thank all of them. And with that, we'll open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Mark Schoenebaum with ISI Group.

A limit to 1 is going to be very difficult for me, but I will do my best. Maybe for Paul, can you tell us how many weeks of TECFIDERA were in the channel and whether or not you expect there to be any kind of a drawdown in 3Q and -- or if you think that these are the right levels? And then, just a related question on the tax rate, I thought TECFIDERA was domiciled the IP was domiciled overseas. So profits generated on that, no matter where you sold it, would be a little bit lower. Can you just clarify that situation?

Excellent. Thanks for the 2 questions, Mark.

That was 1.

1.5. Yes, so look, we certainly wanted to go out of our way to point that the breakout between TECFIDERA channel inventory and in-market patient demand. I think people got that pretty clearly, it appears to me. By definition, the weeks in the channel at the end is like 1 divided -- whatever divided by the 13 weeks, right? So I think what I'd point you to is a couple of things as it relates to that. One is that we take the weeks in the channel very seriously, obviously, with AVONEX, with TYSABRI. And in this quarter, we specifically didn't want to really manage that hard because of the launch dynamics. We wanted to make sure there were no patient supply disruptions of any sort related to that. And particularly in the launch, you don't actually know which what SPPs are going to be the ones taking off versus the others. So that was the dynamic that -- it was probably a little bit more than we thought in terms of the inventory, but it was all to try to support the launch of the product, which was quite successful. As we go forward, what I would guide you to -- and we'll try to point out these dynamics as we go forward, but my expectations is that, for Q3 and for Q4, that our reported TECFIDERA numbers in the United States will largely line up with the in-market patient demand. Said another way, what's in the channel now, which is plus or minus 80, is probably what -- in the magnitude of what we could expect at the end of Q3, and what to expect at the end of Q4. So hopefully, that helps. The tax question is obviously much more complex. But in a given year, your effective tax rate has to mirror the cash flow, the projected cash flow. And given the strength of TEC in the United States, that puts a little bit of short-term upward pressure on the tax rate, greater than what we actually expected. So a good problem to have given that -- the U.S. launch, I think it's temporary as well.

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

I just wanted to clarify 1 or maybe 1.5 things that Tony said on the TECFIDERA launch. First, with regard to his comments about there being some pent-up demand, us expecting or looking to expect maybe a decline in new patient starts. Is that something that you're already observing? Or is that just your assessment of how this launch might play out? And then, I guess secondly, with the TYSABRI transitions to TECFIDERA, what rate of PML might we expect based on your experience with other TYSABRI drug transitions?

Thanks, Eric. Maybe I'll take the first, and have Doug answer the second. So I would think about it this way, if you take the U.S. market, patient flows at sort of a steady-state, all in. The new starts, which is returning quitters, quitters going out, it runs at a rate of about 1,000 to 1,200 patients per week. You can do your patient numbers however you want, but I mean, just looking at the IMS data, it's pretty clear that TECFIDERA alone was running at something like twice that rate in the second quarter. So look, we clearly think that's going to come down and moderate over time. But we remain very optimistic about what the product profile is and the acceptance. So that's the way I think about that.

And Eric, this is Doug. The answer to your question with respect to the rate of PML, I think it's very difficult to come up with a number or to make any predictions about that. I think that what Tony was highlighting was the fact that we had a large number of patients who rolled off of TYSABRI and on to TECFIDERA. Many of them are probably out at or beyond 2 years, and are JC-positive. And just like we've seen with Gilenya and Copaxone and other disease-modifying drugs that patients have been rolled on to, we would anticipate seeing some cases of PML. And we'd expect to see that relatively soon, just given what we've seen with the other DMTs and the kinetics of that event. You'll recall that the TYSABRI label says to monitor patients for 6 months after they come off the drug for the emergence of PML, and so that's the sort of expected window in which these cases would emerge, but I can't give you a specific rate or number.

Your next question comes from the line of Geoff Porges with Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: It doesn't sound like you guys saw it coming much better than we did initially. My question related to regulatory data protection. You've received approval in Canada and Australia, but highlighted on this call the need for regulatory data protection in Europe. Could you tell us about what the regulatory data protection you have is in Canada and Australia, and what's distinct about the exposure you view yourselves as having to generic entry there compared to Europe?

We are all kind of looking around the room here. Well, I think the issue with the regulatory data protection is unique to Europe and doesn't exist in other geographies around the world, and so it's not an issue in Australia or Canada or the U.S.

Your next question comes from the line of Ravi Mehrotra with Credit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: Probably for George. George, we've had a number of TECFIDERA side effect scares over the last year. January, there were malignancy issues. April, the New England Journal, PML, fumaric acid. Issues last week, pneumonia. They've all turned out to be storms in a teacup. What other scares might you anticipate, and how would you help us prepare for them? And this really isn't a second question, and I don't want to guide your answer, but can you just remind us about your post-launch monitoring systems, particularly with Tony's comments about PML? How quickly can you report back to us when those cases pop up?

Yes, thanks, Ravi. Look, there's no reason, at this point, to expect other issues. I'm sure that will crop up, as you said, we had the case this week that turned out to be erroneous and -- was erroneously reported and turns out to be unlikely have anything to do with TECFIDERA. There will probably be other ones of those as we go forward. Look, with respect to PML, I can just reiterate what Doug said. Patients coming off of TYSABRI are at risk for development of PML for a number of months after they discontinue therapy. But I think, in total, about 12% of our PML cases come from patients who have discontinued. Some of them are on other therapies, some of them are not, and we're likely to see the same phenomenon here. And so we are aware of that. We count those cases in our monthly reports when we issue our TYSABRI PML case reports regardless of what drugs patients have switched on to, and TECFIDERA will be treated just like we treat any other drug.

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

I know you're not commenting on E.U. TECFIDERA, but can we infer from your comments, Paul, when you said that revenues were not expected be meaningful in 2013, that you still hope to launch TECFIDERA, believe that it's possible that you could launch TECFIDERA in the back half of the year? And then, just, I was hoping that you could give us a little bit more color on PLEGRIDY, given the success of TECFIDERA so far, you mentioned that you believe this drug could be a leader of interferon. But how do we think about the class given the strength of oral adoption to date?

I'll take the first part, and Tony will take the second part, Rachel. Thanks for the question. Look, it's really -- the revenue guidance -- we obviously, as everyone knows, don't break out product guidance. I think people would love that, but we actually just don't do that. And the revenue guidance, as it relates to the TECFIDERA E.U. number, is just not meaningful. So that really just doesn't say anything specific on the timing. The timing's hard to handicap, as George had mentioned. The outcome's obviously hard to handicap. So we're going to -- we're working constructively. The process is moving along, and that's really all we can say, kind of, at this point. Tony, do you want to grab the [indiscernible].

Yes. So thank you. Look, I'll just repeat, our theory of the market, which we've talked about a lot of times is we think injectables will compress as a class, orals will grow and high efficacy will grow. Orals, with the launch of TECFIDERA off to a fast start, which obviously, we're excited about. The mid- to long-term trajectory of that, we still think injectables are going to be a meaningful portion of the market. We still think convenience is going to be the differentiator. We still think that the PLEGRIDY profile is potentially attractive there, and again, a less frequent injection with a good safety profile mechanism, which is interferon, is going to be appropriate for patients and may be an attractive alternative relative to the oral offerings as well. I don't think our fundamental belief set on that has changed yet. We'll have to see how the market evolves overall.

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

So just a quick -- I'm going to kind of try to sneak them together. TYSABRI, just help us understand, if you can, what percentage of patients are sort of JCV-positive? I'm trying to get kind of an understanding how do we think about the switch rate, sort of, over time? And then second, again, and if you just can clarify, when you guys say, with respect to RDP, you're trying to help explain the status to all parties involved. I don't know if you can explain to us what that means.

Maybe I'll quickly take the first part of that question. I think the last time we talked about this, the best insight we have is obviously United States on TYSABRI. But we think that outside the United States, the numbers I'll kind of share is indicative as well. But if you think of, literally, like, 90 days ago, we had shared that we thought about 2/3 of the patients on TYSABRI were JCV-negative, and we actually think that's accelerating. So it's probably north of that now, and that's fine. That's actually quite good, right? This is a remarkable product for those type of patients, and we think it'll continue to chug along, never getting to 100%, the majority of the patients being on JCV negative.

Look, the second part of your question, Yaron, is -- I don't think we said we were trying to explain the status. I think we said we want to make our entitlement to regulatory data protection clear to all parties. And we are, as Paul said, we're in an active process, and it's a constructive process, and we're working to achieve that goal.

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

I was just looking at your guidance, and I know you said, Paul, you don't give specific product guidance, but I think you did make mention in the past that -- seeing AVONEX being relatively flat this year versus last year. I just was wondering if you can update us on that, given what you're seeing 1 quarter into TECFIDERA. And then, on RDP, I know you don't want to give any insight there. But anything you can comment with respect to how Sanofi's decision on Aubagio recently impacted how you're thinking about TECFIDERA?

Nothing different, Terry, thanks for the question. Nothing different, really, on the AVONEX kind of thinking. So it's plus or minus. I mean, as you know, plus or minus on what is close to a $3 billion number is a big deal, and I appreciate that and I understand that. But I think it's -- the trends on AVONEX are largely as we expected, and I think that what you're seeing in our guidance on the top line and in the bottom line is just kind of really pulling through what is fundamentally a stronger U.S. TECFIDERA launch than we had expected. So great news on that.

George, on the RDP?

Aubagio.

Yes. Look, Aubagio, I think, and TECFIDERA are different products, different situations, and one has very little bearing on the other.

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

Tony, I was hoping you could quantify how large do you think the pool of returning quitters is in the U.S. and Europe, and whether or not you think of it is as a bolus or a longer-term source of patient demand? And then, related -- not sure if you can give us this but actually, what percent discontinued on TECFIDERA in the quarter and whether or not that rate is changing as we get into 3Q?

Thanks. So I think we've said in the past we think the quitter pool, the long-term sort of quitter pool is north of 100,000. I think I've always talked about that as an area of opportunity but been cautious because those patients go off for a complex set of reasons, and often aren't looking for therapy, and it's relatively difficult to activate them. We've said about 1/4 of the patients who started on TECFIDERA in the quarter were not on prior therapy. Our sense is, returning quitters are a piece of that, but it's relatively small. But we think, over time, there is some potential there but we remain cautious about that. We haven't given out the percentage discontinuations. I think I would just repeat what I said in the script, which is that it's very small to date.

Yes, and just I think, discontinuations, compliance rate, all important factors, Matt. As you know, for the balance of year and years beyond, it's just early days. I mean, literally, even for us looking at the data, nothing really to report but it literally is just early days on that. And we've got programs in place to try to optimize that, but it's early days, really, in terms of the revenue curve.

Your next question comes from the line of Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: I got a question for you on the TECFIDERA switches from TYSABRI. So Tony, did you say that the majority of switches had been on TYSABRI for 2 or more years and JCV-positive? And then, a related question. You guys haven't talked a lot about oral pressure on o U.S. TYSABRI previously. Just wondering if there's a new pricing reimbursement dynamic, et cetera?

Yes. So look, a significant portion of the patients that switched to -- off TYSABRI to TECFIDERA were JCV-positive. There's a mix in terms of the length of -- as was always the case, in terms of the length of treatment on TYSABRI -- suppression. But the point was there's 2 things. One, not surprisingly with a new alternative in the market, a number of patients switch relatively quickly, and we think that leveled out closer to market share over time. And second, there's a meaningful pool of this higher-risk group of patients that Doug talked about that are in there. In terms of oral pressure outside the United States, to be explicit, Gilenya is competing very hard in Europe against TYSABRI, and we have some work to do to continue to push TYSABRI's efficacy profile and risk stratification. That's really what the indication there is.

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

So you mentioned switching in line with the market of MS therapies on the TECFIDERA, but is switching coming evenly across the interferons, given that I think you mentioned that you're marketing toward doctors that may not prescribe as much AVONEX? And I thought I'd throw this one in, on Slide 18, you have a lot of pipeline products that read out in the second half of the year of next year, and looking into the next TECFIDERA, which one of those proof-of-concept trials do you think would have the greatest -- will provide the greatest insight into the product's success?

Thanks. It's Tony. So look, plus/minus on the switching relative to market share, we track it week-by-week. It's early days. We believe that AVONEX should outperform on a relative basis among the interferons. It's just very early days in terms of numbers, and we're not surprised that it's roughly at market share. So I think it'll take a little while to develop some more noticeable trends on where the switches are and whether there is differentiation across the therapies, which we believe will happen, but it's early days.

And this is Doug. I'll take the question about the pipeline readouts. I think that in terms of insights into which of these will go to Phase III, which I think is the nature of your question, I think certainly, the ISIS data early in 2014 is going to be very important in terms of creating, hopefully, some additional excitement around that program and a desire to move that forward into registrational studies. And it's a repeat dose data that will be available to us early next year that, hopefully, will confirm that there's efficacy of that product in that disease, and that would lead us right into a very accelerated Phase III program. I'd say all of the Phase IIs are likely to be important in the context of generating enthusiasm for the registrational studies. STX-100 will basically give us the dose to move into a Phase IIb proper proof-of-concept study. LINGO will see the optic neuritis data. I'd see that as proof of biology and not necessarily as the data that would really get us excited about the product, which will come from the relapsing-remitting study in 2015. And then, the anti-TWEAK data will come later. But all of those are really critical studies. They are large enough. They are designed with endpoints that we think are going to be meaningful in terms of deciding where we go with those programs. And hopefully, those will all move to Phase III.

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

I also have a question and a half related to TECFIDERA. Can you give us your view on the current status and landscape for TECFIDERA reimbursement, and possibly, where you anticipate being towards the end of this year and beyond? The second part of the question is related to anecdotal comments we've received from the MS community suggesting some physicians that want to prescribe TECFIDERA are currently holding back from doing so until reimbursement is streamlined, and their patients are ensured continuity in the drug once they initiate treatment. So the second part of the question is really whether you have any color on the proportion of patients or physicians that are still on the sidelines until reimbursement and the landscape is mature.

Good question. Maybe I'll take them in reverse order. So 3,500 physicians have written already. So you can take some comment about who's on the sidelines -- there was not that kind of -- depending on how deep you go in the deck, 6,000, 7,000, 8,000 are kind of a key where you get 80-20 in MS prescription in this market. So we're comfortable that the signal about a broad acceptance of the product profile, and we're also comfortable that there are a lot of physicians writing the product. Certainly, there are cases, I'm sure, where physicians have had frustration with getting patients started on therapy and payer dynamics. That's geographically different -- can be locally very different depending on the payer mix. Our patient services and manage market teams are working with offices in trying to work through those things on a case-by-case basis. We think we've cleared what were some of the early hurdles that were just, frankly, part a function of very, very high demand at the outset. So we know there's some frustration out there, we are engaging with the physician offices constantly. And we feel like we've largely worked through some of the early operational issues. In terms of reimbursement, we're comfortable where we are. Again, we anticipated that we would have payers placing restrictions. We anticipated and communicated that step at its prior outset [ph], et cetera. We're working through that. We, I think, anticipated that kind of 6- to 9-month process, typically, to work through with payers. In process, we feel like it's moving in the right direction, and we're comfortable with where we are.

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

Somewhat related, you had a QuickStart Program that was sort of helping out with that reimbursement process. Maybe you could help us with how many patients or what percent of what was going on in the quarter was from QuickStart and did they all switch onto commercial pain drug and how does that dynamic play into, say, Q3 and on ongoing quarters?

Good question. So QuickStart is our program to help bridge patients when the reimbursement is being adjudicated. Less than 10% in QuickStart. The conversion rate, we are converting people out of QuickStart over time. There's different pace for the people who are in there, depending on how hard it is to work through the individual payer issues. But we think we're working through that backlog, and under 10% in QuickStart.

Your next question comes from the line of John Newman with JMP Securities.

I wondered if I might ask about a comment that was made earlier regarding SG&A leverage going forward beyond this year. I'm just curious if we should take that to mean that your SG&A leverage is going to increase just based on the additional products or is there a way that you can increase SG&A leverage by reallocating the promotional effort within your MS franchise? And when would you start to consider that?

Yes. Great question, John. I think I was referring more to the former than the latter. So I -- obviously, it leverages both the numerator and the denominator. So we are hopeful that we're going to have some continued top line growth. But I think -- and you combine that with our expectations that over the last 18, 24 months, over the next kind of 6 months, we have been making big investments in SG&A to support prelaunch commercial efforts, very much the obvious. We didn't want to be penny wise and pound foolish with the TECFIDERA launch. That's proven, so far, to be a very good judgment. But a lot of that build will -- we've moved towards containing that build and in particular in the U.S., we'll have some of that build ahead of us in multiple sclerosis for E.U., assuming the process moves forward. And we have some of that build for hemophilia ahead of us. But then, we're kind of left with leveraging that. The question of, is there MS -- within MS leverage, within kind of how we manage that. Tony and I have talked openly about that on these calls, and I think we've purposefully left it a question that we'll continue to reconsider and think about over the more multiyear time period.

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

If I could stay with the same theme, Paul, again on SG&A leverage for '14. But in your guidance, which we appreciate, the SG&A numbers as a percent of revenue, as you know, actually stayed flat. So by definition, the absolute number increases. And can you provide any information about what those dollars will actually be earmarked towards? And within the same context if, in fact, there is share shifts in the ABCR category or away from injectable, certainly, in the U.S., Tony, I'd be interested in your thoughts as to whether there is that share shift away from, at least promotional spend, on the AVONEX front regardless of PLEGRIDY next year.

Okay. No, good question. I think, Tony, it's in the range, right? I mean, a little bit of a range. So I don't expect SG&A to be going up dollar-for-dollar with the amount that revenue is going up on the guidance numbers. So there's some modest variable spending in SG&A that comes associated with extra revenue. We're trying to make sure that any of the operational issues on TECFIDERA from a supply perspective, from a reimbursement perspective that we're well funding this. So that's really what it's intended to kind of imply.

Tony, in terms of the share shift, good question. We're constantly looking at that. I think it's a little early in the evolution of the market to make a call on that. But we are obviously, constantly, think -- we continue to think we're happy with the success of TECFIDERA and where we think it's headed. We continue to think the injectables will be a meaningful portion of the market for some time to come. We want to outcompete in that area, and we'll get the appropriate level of resource against that, but it's something we're constantly looking at a balance across the franchise. And I'll remind you, we have a franchise with a goal in patients across the franchise. And as you think about SG&A leverage in the next couple of years, you have new competitors coming in, the market is getting more crowded, not less crowded. So there are going to be a lot of people to compete with. So we're very mindful of that as well.

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

I was wondering if you could give us any more information on that patient who died of pneumonia after stopping TECFIDERA, details like lymphocyte counts before or during and after treatment, if any particular culprit has been found for their lung infection. Maybe just help talk us through attributes of that case that give you the confidence that it's not that related to the drug.

Sure. This is Doug. I'll be happy to take that question. I think with respect to lymphocyte counts, we don't have the specific information on this patient at this moment. We're still investigating the case. But what I can say is that if you look back at the Phase III experience with the product that the kinetics of lymphocyte drop in patients that had it, tends to occur much later than what we've seen and in terms of -- this is a patient that was on drug for 5.5 weeks and then, came off for 2.5 weeks before they passed away. So I think there's a disconnect in the kinetics of any sort of lymphocyte issues here. But we don't have the lymphocyte counts on this particular patient. Again, I would point you back to the Phase III experience where there was no signal in terms of increased infection risk in patients who received TECFIDERA. So I think that our conclusion, based on the information we have available to us, is sort of twofold: number one, the cause of death was not GI complications as reported in the media; number two, it's pretty clear that this was bilateral pneumonia in this patient. But there's no suspected effect of TECFIDERA on increasing the risk of infection based on experience we have to date. So I think we feel pretty confident that this was an unfortunate set of circumstances in this individual patient that doesn't implicate TECFIDERA.

I'll now turn the conference back over to our presenters.

Okay. Thanks, everybody. Had a great quarter, appreciate all the questions. And we can all get back to work now. Thanks for your attention.

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