UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
||Preliminary Proxy Statement
||Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
||Definitive Proxy Statement
||Definitive Additional Materials
||Soliciting Material Pursuant to § 240.14a-12
BIOGEN IDEC INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
||No fee required.
||Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
||Title of each class of securities to which transaction applies:
||Aggregate number of securities to which transaction applies:
||Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
||Proposed maximum aggregate value of transaction:
||Total fee paid:
||Fee paid previously with preliminary materials.
||Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
||Amount Previously Paid:
||Form, Schedule or Registration Statement No.:
PROXY COMMUNICATION STATEMENT
Biogen Idec and its directors, executive officers and other members of its management and employees
may be deemed to be participants in the solicitation of proxies from the stockholders of Biogen
Idec in connection with the Companys 2009 annual meeting of stockholders. On April 1, 2009, Biogen
Idec filed a preliminary proxy statement with the Securities and Exchange Commission (the SEC)
and will file a definitive proxy statement and other materials concerning the proposals to be
presented at the Companys 2009 annual meeting. Information concerning the interests of
participants in the solicitation of proxies is included in the proxy statement.
THE PROXY STATEMENT CONTAINS IMPORTANT INFORMATION ABOUT BIOGEN IDEC AND THE 2009 ANNUAL MEETING OF
STOCKHOLDERS. Biogen Idecs stockholders are advised to read carefully the proxy statement, and any
amendments or supplements thereto, and other materials filed by Biogen Idec in connection with the
Companys 2009 annual meeting of stockholders, when available, before making any voting or
investment decision. The Companys proxy statement and other materials, as well as the annual,
quarterly and special reports filed with the SEC, when available, can be obtained free of charge at
the SECs web site at www.sec.gov or from Biogen Idec at www.biogenidec.com. The Companys
definitive proxy statement and other materials will also be available for free by writing to Biogen
Idec Inc., 14 Cambridge Center, Cambridge, MA 02142 or by contacting our proxy solicitor, Innisfree
M&A Incorporated, by toll-free telephone at (877) 750-5836 or by e-mail at firstname.lastname@example.org.
Biogen Idec Inc. Chief Financial Officer and Executive Vice President
Biogen Idec Inc. Chief Executive Officer and President
Biogen Idec Inc. Senior Vice President, Neurology R&D
Biogen Idec Inc. Senior Vice President, US Commercial
Biogen Idec Inc. Vice President, Investor Relations
Good afternoon. I will be your conference operator today. (Operator Instructions). If you
would like to ask a question during this time, simply press star, then the number one on your
telephone keypad. Miss Woo, you may begin your conference.
Thank you. Welcome to Biogen Idecs earnings conference call for the first quarter 2009.
Before we begin, Id encourage everyone to go to the investor relations section of our web site,
BiogenIdec.com and print out the press release and related financial tables. Youll find these are
particular helpful when our CFO, Paul Clancy, reviews the financial results and reconciliation to
non-GAAP financial measures discussed today. We have also posted the slides on our web site that
outline the topics discussed on todays call.
Well start with the Safe Harbor statement. Comments made in this conference call include
forward-looking statements about our expected future results including our 2009 financial guidance,
our longer term operational and financial goals, the sales potential of TYSABRI and other products
and pipeline advancement. These statements are
subject to risks and uncertainties which could cause actual results to differ materially from
expectations. You should carefully review the risks and uncertainties that are described in our
earnings release, and in item 1 A of our most recent annual and quarterly reports filed with the
SEC. We do not undertake any obligation to publicly update any forward-looking statements.
In addition, we have filed a preliminary proxy statement with the SEC for our 2009 annual meeting
of stockholders. Before making any voting decision about our annual meeting proposals, you should
carefully review our definitive proxy statement and related materials which will be available free
of charge at our web site or the SECs web site.
On todays call, Im joined by Jim Mullen, CEO of Biogen Idec, Bill Sibold, Senior Vice President,
US Commercial, Dr. Al Sandrock, Senior Vice President, Neurology R&D, Paul Clancy, CFO and EVP
Finance. Ill now turn the call over to Jim.
Thank you, Elizabeth. Good afternoon, everyone. The first-quarter 2009 results were in line
with our expectations and consistent with full-year 2009 guidance we provided in February. Revenue
grew 10% year-over-year to more than $1 billion, non-GAAP earnings per share grew by 27%. In the
face of a more challenging macro environment and foreign exchange unfavorability, we saw revenue
growth of all three of our marketed products and signs of strengthening in TYSABRI trends in the
back end of the quarter. We are controlling expenses aggressively, while at the same time investing
in and advancing the pipeline that we highlighted at our R&D day in March. We have 20 programs in
Phase II trials and beyond, and aim to have nine registrational programs ongoing by the end of the
Our marketed products posted strong business performance in the first quarter, total revenues grew
10% year-over-year, and the franchises remain strong. AVONEX remains the global market leader, and
success is driven by the long-term safety and efficacy profile. The number of patients on TYSABRI
continues to grow steadily, approximately 2,400 patients were added in Q1 for a net total of 40,000
patients on therapy. We have reoriented the marketing and sales efforts in TYSABRI, and are back to
talking about the benefit risk profile. We have seen early signs of success in turning TYSABRI
around. Leading indicators have been positive in the second half of the quarter, compared to the
first half, a hopeful sign for continued strength and acceleration of patient additions as we move
past the nadir in January and early February.
And just this week we received FDA approval for the high-titer manufacturing process and that
follows European approval for the process in December. Revenue from RITUXAN unconsolidated joint
business grew 13% to over $279 million. RITUXAN is on track to achieve two additional indications.
The first is the RA DMARD-Inadequate Responder. File was submitted last year with the summer 2009
PDUFA date. Also the IMAGE data announced in Q4 should strengthen the competitive profile for
RITUXAN in RA. Secondly, we and our partners plan to expand the label in CLL by filing the CLL8 and
REACH data in both US and Europe later this year. Bill Sibold, the SVP, US Commercial, will take
you through an update of commercial franchises in a few minutes. As you have heard from other
companies that have reported recently, the impact from the economic downturn is becoming more
measurable. And weve been monitoring the business closely.
We face many of the same issues as others, but believe we have been buffered somewhat from the
macro environment because of the severity of our diseases that our products treat as well as the
expansion of our global footprint in recent years. With that said, we have seen signs of modest
impact in our business from the downturn such as increased requests for free and subsidized
products, and financial stress of a few of our supply chain partners. Paul will provide a few
details for you. In the current environment we believe it is prudent to exercise some discipline
and protect both the bottom line and the balance sheet, and weve been working successfully toward
Strategically, our pipeline is focused on first in class or best in class specialty products and
diseases with high unmet need and global application. We presented many of our pipeline programs in
great detail at our R&D day in March. We provided unprecedented detail on some programs as well as
access to people driving the pipeline forward. From the feedback weve heard, I think many of you
better understand the excitement we have for our pipeline, and those of you who attended witnessed
firsthand the excitement and passion of our scientific leaders. In particular, some of
you saw the potential for the PEG interferon to extend our AVONEX brand. We will have additional
PEG interferon data at AAN later this month.
In a few minutes, Dr. Al Sandrock will highlight the neurology franchise and pipeline presentation
that we will be making at the upcoming AAN meeting. In addition to the positive feedback on R&D
day, we recently received independent validation of the quality of our pipeline from Moodys. Among
12 large US-based pharmaceutical and biotech companies, Biogen Idec ranked highest on late-stage
pipeline quality, and in the top third on pipeline diversity. And finally, with respect to
performance, our goal for 2007 to 2010 is to deliver 15 and 20 top and bottom line compounded
annual growth rate. With five strong quarters on the book, were on track to achieve these
financial goals. We continue to expect 2009 non-GAAP earnings per share above $4.00, and we expect
cash flow to exceed earnings.
Three variables that may have impact on 2009, include the pace and timing of TYSABRI growth, the
speed of advancement of late stage clinical trials, and the impact of the ongoing economic
downturn. In conclusion, the quarter turned out as we expected consistent with full-year 2009
guidance. We managed through some challenges and worked to deliver bottom line performance and
enhance the balance sheet. We have strong franchises, cash flows, and balance sheet and we ended
the quarter with approximately $2.5 billion in cash and marketable securities. We continue to focus
on products, pipeline, and performance as the drivers of long-term shareholder value creation. Ill
now turn the call over to Bill Sibold, the head of the US commercial business. Bill.
Thanks, Jim. In the first quarter, our global neurology business delivered approximately $720
million in revenue. This is up 11% versus Q1 of 2008, driven primarily by the growth of TYSABRI
over the last year. AVONEXs $555 million in global revenue in Q1 was up 4% year-over-year. This
over $2 billion annual run rate reflects the strength of AVONEXs market-leading position with
approximately 135,000 patients on therapy worldwide. TYSABRI had in-market revenue of $227 million
in the first quarter, a 42% increase compared to the prior year, keeping it on a growth trajectory
comparable to other biologics that became blockbusters such as Enbrel and Remicade.
As you can see from the press release, we continue to increase the number of patients on TYSABRI in
the US and internationally. We now have over 40,000 patients on commercial and clinical therapy,
and approximately 6,800 patients have been on therapy for over two years. Now a little bit about
AVONEX and TYSABRI in 2009. AVONEX will celebrate its 13th year on the market this year. We
continue to be excited about the new data that is coming out about AVONEX. Specifically, I am
referring to two significant studies. First, the assurance data that was released at ECTRIMS showed
that patients who remained on AVONEX for up to 15 years since the original pivotal trial had
reduced disability progressions, greater quality of life, and significantly greater sense of
independence and self-care versus those patients who had either switched to another therapy or
Second, data from the 10-year CHAMPIONS extension trial will be released at AAN later this month.
This is the first trial looking at the long-term impact of treatment in early MS patients. AVONEX
is the only product with this type of proven efficacy, which we know is very important in this
market. The combination of AVONEXs proven efficacy and best in class compliance is why it is the
#1 MS therapy in the world. AVONEX disrupts the disease, not patients lives, and has demonstrated
that it has the power to work early and keep patients active longer.
Turning to TYSABRI. As you may recall at the beginning of the year, I said that we have three key
objectives for TYSABRI in 2009. First, refocus communications on TYSABRIs unprecedented efficacy.
Second, help physicians increase their comfort in diagnosing and managing PML. Third, translate
resulting improvement in TYSABRIs benefit risk perception into increased and sustained use.
Progress against the first objective has been encouraging. The percent of MS-prescribing physicians
who believe that the benefits of TYSABRI outweigh the risks has remained very high since December,
and is in line with pre-July 31, 2008, levels. We believe that this is a result of our significant
efforts and the expanding efficacy picture for TYSABRI.
While the other MS therapies discuss efficacy in terms of decreasing relapses and slowing
disability, TYSABRI has been able to demonstrate that in some patients the disease activity halts,
and in other patients, physical disability associated with MS improved. On the second objective,
through the early part of this year, we increased the level of
education about PML and clinical vigilance to increase prescribers awareness and comfort in
diagnosing and managing the disease. We have also launched a number of other promotional
initiatives to assist physician necessary discussing TYSABRI with their patients and to encourage
patients to have open conversations about their therapy needs with their physicians. We are looking
forward to the upcoming AAN meeting where an update on TYSABRI safety and utilization will occur.
With respect to TYSABRI trends, we continue to closely monitor international [INAUDIBLE]. We
continue to closely monitor international and touch data to understand trends in TYSABRI
prescribing patterns with obviously the most detail available for the US. As you are aware, there
was moderation in patient growth in Q3 that was driven by both the slowdown in the rate of new
patient adds, as well as an increase in discontinuations and that trend stabilized in Q4. Q1
appears consistent with Q4. However, in the last two months, February and March, we have seen
further improvement in the trends for both new patient starts as well as discontinuations. We are
optimistic that this trend will continue.
The type of patients coming to TYSABRI appear to be unchanged based on both their time since
diagnosis with MS and their prior therapy. Copaxone is still the largest source of switchers.
Additionally, we continue to see about 4% to 5% of TYSABRI patients naive to therapy. We are
actively engaging multiple channels to gain insight into the markets, feedback from our customers,
and to promote TYSABRI. We create touch points with not only physicians and patients but also
payors, regulators, and patient associations. Specifically on the promotional front, we optimize
and reach our frequency of messaging to physicians and patients. We do so through our sales force
and patient services group, as well as numerous live peer-to-peer and patient programs, direct
mail, and email.
In conclusion, we remain excited about the remainder of the year and the future. The new data on
AVONEX extends beyond that of any of its competitors in the ABCR market, and further reinforces
that it is the right product to start with and stay with for the long term. TYSABRIs emerging
efficacy profile continues to impress and reinforce its positioning as the product for patients
that need more efficacy. And finally, our deep and broad MS pipeline positions us well to drive
strong performance in the future. Nobody is doing more for MS than Biogen Idec. I will now hand the
call to Dr. Al Sandrock, Senior Vice President Neurology R&D. Al?
Thank you, Bill. As Jim noted, we provided a thorough update of our development pipeline less
than a month ago at R&D day. And the slides are up on our web site. On todays call I would like to
highlight our activities at the upcoming American Academy of Neurology meeting which will occur
later this month in Seattle. The AAN meeting is an important venue for us to exchange ideas and
information with our neurology colleagues and interact with the MS community. There will be 25
company-sponsored platform and poster presentations at AAN covering the five compounds that are
marketed or in the later stages of development. These include AVONEX, TYSABRI, BG-12, PEGylated
interferon beta 1-a, and daclizumab. Biogen Idec is a leader in advancing therapeutics for multiple
sclerosis and is already redefining success for patients living with MS. For example, with TYSABRI
we are moving beyond slowing the progression of the disease in that some patients may become free
from disease activity, or even experience reversal of physical disability during treatment. And if
our preclinical experiments are any indication, we may one day even be able to repair the central
nervous system that has been damaged by the disease.
The AAN will demonstrate that we have one of the most robust MS pipelines in the industry, with
drugs targeting the multiple biological pathways thought to be critical for disease onset and
progression. To date, many of these programs have shown compelling results in clinical trials, and
we look forward to their continued development. One poster will show that daclizumab, which was
shown to reduce MS lesions visualized by MRI scans in the randomized double-blind,
placebo-controlled Phase II choice trial appears to reduce T-cell activation during treatment.
There will be two BG-12 posters at the Congress which will provide further evidence of a potential
dual anti-inflammatory and neuroprotective mechanism of action for this oral therapy.
I want to note here that during the quarter, we completed enrollment in the DEFINE Phase III trial
of BG-12, a trial with over 1,200 patients randomized at 200 clinical centers around the globe. And
at the second Phase III trial, CONFIRM, is expected to complete enrollment later this year. There
will be two Company-sponsored posters on PEGylated interferon beta-1a at the AAN. One on safety and
tolerability and the other on the PK/PD profile of the
drug as observed in the Phase I trials. These data support the advancement of PEGylated interferon
beta 1-a into a registrational trial, which we expect to commence within a few months. This trial
which will enroll over 1,200 patients will test two subcutaneous dosing regimens, once every two
weeks and once every four weeks. As I have already noted, we will be also be showing new data on
our marketed products, AVONEX and TYSABRI at the AAN.
There will be six company-sponsored posters and presentations on AVONEX, including one on the
CHAMPIONS ten year extension study which followed patients for a decade after starting AVONEX
therapy just after the first demyelinating clinical event that heralded the onset of MS. There will
also be 14 company-sponsored TYSABRI posters and presentations in Seattle. Among these will be a
poster on the post talk analysis of the Phase III AFFIRM trial which showed that a substantial
proportion of patients realized an improvement of physical function as measured by sustained
decreases in EDSS over the course of the two-year trial. Another poster will show data that
indicates that the TYSABRI treatment may promote remylenation in MS patients as assessed by novel
Finally, as we have been doing at the major neurology meetings, there will be a platform
presentation that will provide updated TYSABRI safety and utilization information. All in all, we
believe that our activities at AAN will highlight our extensive efforts in research and development
and will underscore Biogen Idecs commitment to improving the lives of patients living with MS.
With that Ill now hand it over to our CFO, Paul Clancy.
Thanks, Al. Our Q1 financial results were right on track with our business plan to achieve 10%
top-line growth and 27% non-GAAP earnings per share growth on a year-over-year basis. The GAAP
financials are provided in tables 1 and 2 of the earnings release. Table 3 youll find a
reconciliation of GAAP to non-GAAP results. Our GAAP diluted EPS was $0.84 cents in Q1. The primary
differences between our GAAP and non-GAAP results for the quarter were $89 million related to the
amortization of intangible assets, $7 million for pretax employee stock option expense, and $35
million tax impact related to these items. Now Ill move on to the non-GAAP P&L operating
performance of Biogen Idec which we believe better represents the ongoing economics of our
business, and reflects how we manage the business internally and set operational goals. Our
non-GAAP diluted EPS was $1.05 for Q1. Q1 total revenue was $1 billion 36 million, representing a
10% growth over the same period last year.
Going through our product revenues, Ill start with AVONEX. Q1 AVONEX worldwide product revenue was
$555 million, representing 4% increase over the same period last year. Q1 US AVONEX product revenue
was $340 million which represents a 10% increase over the same period last year. On a sequential
basis, US AVONEX revenues were essentially flat, as price increases offset a 4% unit decline. We
had approximately one less shipping week in the quarter versus Q4, which was offset by inventory in
the channel modestly up to 2.4 weeks. Q1 international AVONEX product revenues were $215 million,
representing a decrease of 5% on a year-over-year basis. This decrease was primarily due to
unfavorable foreign exchange as the dollar-to-Euro exchange rate strengthened from on average 1.51
in Q1 2008, to 1.31 in Q1 2009. This FX movement had approximately $30 million impact to AVONEX
international sales. Units were flat versus prior year, as an increase in our direct markets was
offset by a decline in our distributor markets. The decline in the distributor markets was
attributed to our tender business.
Q1 TYSABRI worldwide Biogen Idec product sales were $165 million, a 44% increase versus Q1 2008. US
end-user TYSABRI sales totaled $116 million, of which Biogen Idec booked $54 million of this
amount. US channel inventory ended modestly lower in in Q4 2008. International end-user TYSABRI
sales totaled $111 million. Before I move on to RITUXAN, Ill like to briefly touch on the current
economic environment and its impact to the MS franchise. As Jim noted, MS is a severe disease and
our business has been modestly impacted by the current economic downturn. Our international
business is somewhat buffered from the economic downturn in the short run, as most drugs are
Nevertheless, in the US we have seen an increase in the number of patients who are receiving free
supply of TYSABRI and AVONEX. Weve also noticed that co-pay assistance has increased.
Specifically, the number of patients on free drug, has trended up very much in line with the US
unemployment rate. For the quarter, we estimate
that this had approximately $6 million to $10 million impact on the top line. Well continue to
monitor this on our business. Its important also to note that foreign exchange impact on our
product sales, including what I had mentioned on AVONEX international, was approximately $40
million in total or 4% to our top line for first quarter compared to prior year.
Now moving on to the RITUXAN collaboration revenues referred to as revenue from unconsolidated
joint business. We recorded $279 million in revenue for the quarter, representing an increase of
13% on a year-over-year basis. Our RITUXAN revenues are broken into three components. First, our
share of the US RITUXAN profits. Net US RITUXAN sales were $642 million in the first quarter, up 6%
versus prior year. And our Q1 profit share from that business was $180 million, up 14% versus prior
year. The year-over-year increase benefited from price increases taken during 2008, and lower
operating expenses in the collaboration.
Second, we received revenue on sales of rituximab outside the US. And in Q1 this was $84 million,
up 10% versus prior year. And last, we were reimbursed $15 million for selling and development
costs incurred related to RITUXAN. Q1 royalties were $24 million for the quarter. The decrease on a
sequential basis was primarily due to the stepped down royalty tier on Angiomax. Now turning to the
expense lines in the P&L, which includes the non-GAAP adjustments that I described earlier. Q1 COGS
were $98 million or 9% of revenues. COGS on a year-over-year basis modestly benefited from the
expiration of a third-party royalty on AVONEX. Q1 R&D expense was $275 million which was
approximately 26% of revenues. R&D expenses increased 8% on a year-over-year basis driven by our
continued advancement of the pipeline.
Included in Q1 were milestones paid to Aveo, the oncology antibody licensing agreement, and to
Neurimmune in the aggregate of $10 million. Q1 SG&A expenses were $217 million, representing 21% of
revenues and representing a 2% year-over-year increase. SG&A benefited from FX in the quarter as
compared to prior year. Continuing down the P&L, our collaboration profit sharing line totaled $43
million in expense for the quarter. This represents our payment of 50% of profits on TYSABRI
outside the US to Elan, and a reimbursement of third-party royalties incurred by Elan outside the
Other income and expense for the quarter was a gain of approximately $7 million, which was $4
million favorable on a year-over-year basis. We ended the quarter with a strong cash and marketable
securities position of $2.5 billion, generated interest income of $15 million, which was offset by
interest expense of approximately $10 million. We repurchased 1.2 million shares under our share
stabilization program in Q1. Our Q1 non-GAAP tax rate was approximately 24.5%, much lower than our
normal tax rate. The effective tax rate for the quarter was favorably impacted by a one-time
discreet item related to recently enacted state legislation. This will allow us to utilize certain
R&D investment tax credits.
We expect our non-GAAP tax rate for the remaining quarters in 2009 to be between 28% and 30%, and
likely be at the lower end of this range for the full year. This brings us to our Q1 non-GAAP
diluted earnings per share of $1.05, representing 27% increase over the same period last year.
Were confirming our full-year 2009 guidance outlined in February. Top line growth in the high
single digits, and non-GAAP earnings per share above $4.00. Additionally Id like to just add some
perspective on cash flow.
Were also targeting to increase free cash flow growth over the rate of EPS growth. So our business
plan is to achieve leverage from the top line to the earnings line, and further leverage in the
free cash flow growth. Q1 was a solid quarter for Biogen Idec. Were increasing our efforts in
educating the physician and patient community on the benefits of TYSABRI. Were progressing in
investing in our pipeline. Our EPS growth was impressive as we continued to exercise discipline,
and we continue to generate significant operating cash flow and have a strong balance sheet. Ill
turn the call over to Jim for his closing comments.
Thank you, Paul. In summary, business performance for the quarter was as expected, in line
with our full-year guidance. We continue to look for the best ways to maximize value for the
shareholders, whether through investment or returning cash to shareholders. In our discussions with
numerous shareholders, some see current asset values as a buying opportunity while others see share
buybacks as the best use of cash. Were carefully evaluating
both ends of that spectrum, as well as all of the options in between. While we face some challenges
in the remainder of 2009, I believe the strong fundamentals of the business across all products and
geographies will continue to deliver robust results and create significant value for our
shareholders. With that, Elizabeth, lets open it up for Q&A.
Great, thanks, Jim. Joining us on the call for the Q&A session is Dr. Cecil Pickett, our
President of Research and Development. So Ashley, were ready to open up the call. Wed ask the
participants on the call to limit themselves to one question and then re-enter the queue for
follow-up questions to allow most people to get their questions in. And please state the name and
company affiliation. So Ashley, we can take the first question now.
Our first question comes from Jason Kantor with RBC Capital Markets.
Jason Kantor RBC Capital Markets
Wow, great. First up. Could you be more specific, exactly what are you tracking in the TYSABRI
numbers that youre saying, youre seeing an uptick in and what gives you confidence that things
are getting better? And how sensitive are these leading metrics to, for example, another case of
PML should it occur?
Sure. Why dont I this is Jim. Why dont I ask Paul to make a couple comments as well as
Bill on that.
Well, you know, our practice has been to provide the patient data on a quarterly basis. And
well kind of continue that pattern. So we wont be giving a detailed monthly or weekly data. But
Bill can provide some additional color on the recent trends weve been seeing.
Well, while the quarter as a whole saw steady patient growth we saw signs of strength more
recently. And looking back over the last few months, we see that December and January net patient
adds were very soft. But we were moderately higher than that, in the back end of the quarter. And
more specifically, March was the highest month of net patient adds in the past five months, in both
the US and in international. And in addition, we are seeing some hopeful signs from leading
indicators such as touch forms in the US, and finally discontinuations have started to return to
pre-PML levels from what we can see.
So just to finish off the question, so the measurement is obviously more accurate in the US,
where we have the TOUCH program than it is internationally where its a little bit of
triangulation. Relative to the sensitivity to another case of PML, I think weve been through all
of that. And not much has changed with the last couple of cases of PML. So presuming that the rate
stays more or less where it is, I dont think theres a lot of sensitivity to a case or two of PML.
The next question?
Our next question comes from Geoff Porges with Bernstein.
Geoff Porges Bernstein
Thank you for taking the question. If I could follow up with something that you mentioned on
the call. I think you said there was one left shipping week in Q1 than Q4. And there were some
changes in inventory that also reflected you in Q1 versus Q4. Could you give us a little bit more
color on that, and whether I misheard you or not about that, and just talk us through what the
actual changes in inventory were and also the shipping days Q over Q and year-over-year?
Yes, so Geoff, this is Paul. What Ive referred to you picked it up spot on. What I
referred to was AVONEX. And I think the way to think about it, there was an extra week in Q4 as
opposed to Q1. Were back to a normalized kind of quarter of essentially 13 weeks of shipping in
Q1. So I think you just want to be mindful of that when you look at sequential, but not when you
look at overlapping on a year-to-year basis. We have distributor relationships in the United States
on AVONEX, and a couple of the relationships had asked for additional they had changed their
distribution locations and asked for additional weeks in the channel. We had as a result, AVONEX
channel, weeks in the channel have moved up, from roughly about 2.1 to roughly about 2.4 weeks in
the channel for AVONEX. Thats a permanent change. So I dont think youll see that wiggle and
woggle around over the next couple of quarters. And then, to some extent that increase was offset
by we actually saw it decline a little bit on the TYSABRI business.
Our next question comes from Michael Aberman with Credit Suisse.
Michael Aberman Credit Suisse
Hey guys thanks, I have a question about TYSABRI. You had in the US Ill start off with
I havent even gotten to do the math ex-US but it looks like you had another sequential increase
in patient numbers, and a 3% price increase at the end of fourth quarter, yet end-user sales are
not up enough to really account for that. And even looking back third quarter to fourth quarter
a similar situation with number of patient net adds increasing but the actual revenue not
tracking with that. Can you help us understand whats happening there with doses per quarter, and
how that might be playing a role in the revenue? And you think thats going to change?
Yes. This is Paul. Michael, thanks for the question. I think this brought two dynamics that we
are looking at and pointing to. One is kind of this in essence, the macro trend and the increase in
free goods if you will, as a result of the patients for both AVONEX and TYSABRI. That is certainly
pronounced in TYSABRI, given the uptick curve. And then the other trend were seeing is a very
modest decline on a quarter-to-quarter basis in terms of infusions per patients over the course of
a quarter. Its not anything that we see as alarming. We saw this actually early in the AVONEX
days, in the launch days years ago. So I think its nothing that we see alarming. Obviously, you
know, people are mindful of thinking about it as drug holiday, but we arent pointing to it that
way in any regard.
Our next question comes from Geoff Meacham with JPMorgan.
Geoff Meacham JPMorgan
Hi, guys. Thanks for taking the question. Just wanted to question here, sort of bigger
picture on TYSABRI. As you guys accumulate PML cases over the next few years, how do you see it
playing out commercially? Do you think docs will look to common futures such as duration of therapy
or baseline ability to manage patients? How will that work do you think in practice?
Hi, yes, this is Bill. I think as we look at the evolving landscape, if you look into the
pipelines of any of the products which are going to be launching in the coming years, there each
certainly appears to have its own benefit and risk profile associated with it. And part of what we
are seeing is, we expect that the neurology community will evolve in its approach to benefit risk,
as they have more products to that they have to make that evaluation. Just to draw comparison to
rheumatology where youve got, you know, three blockbuster anti-TNF for years before the TNF
launched rheumatologists had the opportunity to get comfortable with benefit risk for methotrexate.
And you can see also that TYSABRIs tracking in the period post launch very well with those
So, you know, we think that theres going to be kind of an evolution of the specialty feeling more
comfortable with benefit risk. And I think certainly with PML, they will become more comfortable
with that. And, certainly it will depend upon what happens from here and what the outcome of the
Our next question comes from May-Kin Ho with Goldman Sachs.
May-Kin Ho Goldman Sachs
Hi. Can you talk a little bit about AVONEX in terms of reimbursement or insurance coverage?
How many percent of the patients are commercial insurance? How much of that is pharmacy benefit,
what kind of tier it is? And I heard you mentioned that there were some drug holidays for TYSABRI
patients that you saw before. But we all know that the current economic condition is quite
different than what we saw previously. So do you expect to have more patients basically stretching
out a time, maybe taking drug holidays and are you seeing delays in patient starts because of
the economic conditions?
Okay. May-Kin, were going to forget all of the questions that were in that. But you did it in
one sentence, so well give you credit. Maybe I can let me start with the last one, because I
think Bill is trying to see if he can dig out some of the data that you asked for on the first.
What do we see? We are seeing patient requests for free goods or subsidized goods track more or
less with unemployment. You can probably infer some of that into people thinking about how to
stretch their budgets, too. You might see a little bit more of that stretch out as we go through
and bottom out here on employment numbers. Its very hard to predict, but we we can see a few
percent impact on the business there. In terms of some of the other questions, Bill, do you have
the directional answers, or are we going to have to
Yes. We can get a little bit more specific. To start off with, AVONEX is in a very favorable
position from a reimbursement perspective. In most of the plans, it enjoys just very good
positioning. And we have seen that not be a barrier to getting use of the product. We the vast
majority of the patients have a fixed co-pay along the lines of $20 to $30 a month. And a small
number have co-insurance which would be typically in that 20% cost. So I think from a since its
covered its covered under pharmacy benefit, its got great positioning, and we feel feel
very comfortable with AVONEX.
Our next question comes from Joel Sendek with Lazard.
Joel Lazard Lazard
Hi. Thanks. I have a question about the high titer process. Will that have any material
impact on the gross margin? And if so, when?
Yes, Joel. The answer is it will have an impact on the gross margin. Youre not really going
to see much of that this year as we work through the various stages of inventory we have. And as
you can probably appreciate weve got to build some inventory here before we want to move that one
into the market, as well. But weve got I dont really think youre going to see much of it this
year. And when you look at the gross margin, well get some pickup there. But a lot of whats in
the gross margin are third-party royalty payments to other people. So thats a pretty good chunk of
whats in our cost of goods now. So, a little pickup, but think of it as a percent or two maybe.
Joel? I just this is Paul. I just add the way it comes I think Jim talked about that as
it relates to kind of from a TYSABRI collaboration point of view. The way it comes into our our
P&L is slightly different than a normal into the gross margin or cost of goods line. Most pointedly
would be in the economic the US and the purchase price economics.
Our next question comes from Jim Birchenough with Barclays Capital.
Jim Birchenough Barclays Capital
Hi, guys. Just trying to understand better the impact of your education program around PML
risk. And with better surveillance weve seen better outcomes. Im just wondering what the results
of that, have been in terms of suspected cases coming to you guys. Are you seeing physicians more
expert at teasing out whats a real high risk for PML case? Or are you seeing just a lower
sensitivity to suspected cases being reported to you guys? Just wondering what trend were seeing
Al, can I ask you to pick that one up?
Dr. Al Sandrock
Yes. I think what were seeing is that patients are being picked up earlier. I dont think
that were getting a big change in terms of suspected cases. What were seeing is earlier
recognition and earlier use of some of the tools that weve provided in terms of managing the
Our next question comes from Yaron Werber with Citi.
Yaron Werber Cititbank
Well, I have two questions for you. One, can you just help us understand a little bit the
TYSABRI draw down in inventory that happened in Q4? I dont know if you can quantify that in days
or in millions. Second question. Just help us understand the tax rate a little bit more. Im sorry
if I missed why it was so low in the quarter, and youre guiding it sounds like to the lower end
of your range. Help us understand how would the tax rate slowly ramp up.
Yes. Lets take the first one. TYSABRI, what I had referenced was Q1 versus Q4. So not that it
was drawn down in Q4. Just the quarter-to-quarter change on weeks of inventory in the United States
is modestly down. And were talking in the less than a week kind of so half a week type of down
on weeks in channel. In terms of the tax rate,
we benefited from a discreet item a one time.
There was a change in tax in state legislation, tax law, we set up what we call Fin 48 reserves.
We set up reserves over the long long haul, as it relates to our taxes, and embedded in those
reserves is certain embedded in that is legislation. The legislation changed which gives us high
probability and certainty that we will be able to capture reserves for a number of the years in
certain states. Thats a one-time benefit, its not sustainable. So all I was pointing to in terms
for the balance of the year is that we drive back up to our normal rate. Without that discreet
item, when you combine three quarters with of a normal rate with one quarter with kind of a
depressed rate, its likely at the lower end of the tax range.
Basically allows us to capture some R&D tax credits that were otherwise hung up.
Our next question comes from Eric Schmidt with Cowen and Company.
Eric Schmidt Cowen & Company
Good afternoon. A couple financial questions for Paul. First is the is the gross margin in
Q1 a real number that we can use going forward for the year? And second, your EPS guidance remains
kind of open ended for 2009. Do you expect to grow the bottom line over the subsequent three
So gross margin is what we are looking at now is probably indicative of the balance of the
year plus or minus. In terms of earnings per share, I go back to Jims point in the opening, the
kind of three big variables will be rate of uptake on TYSABRI. The macro environment that, were
not terribly concerned about, dont want to kind of get that point across, but were being mindful
about. And then the rate of acceleration of the R&D business. Had a good quarter on the bottom line
this quarter. I mean you can all do the math. Obviously, we want to grow the earnings for the
balance of the year. But we just want to try to make sure that were still definitely being able it
achieve our full-year earnings per share target.
Our next question comes from Mark Hillenbaum with Deutsche Bank.
Mark Hillenbaum Deutsche Bank
Okay. Thanks. But I get it. So I keep it in one sentence and I can it ask multiple questions.
Im going to try to do this.
Mark, it wasnt thats not what I meant.
Mark Hillenbaum Deutsche Bank
Okay I just took a deep big breath. On TYSABRI, should we model current dollars if the
dollars per patient calculation that this quarters results would spit out, you said you werent
alarmed by the misconfusions, but what Im trying to understand is this a run rate that we should
use going forward in our models when we think about modeling TYSABRI revenue from our patient add
calculations? And then just to be clear, for this one less shipping week, was that only for AVONEX,
or did that also apply to TYSABRI?
Let me take it in the reverse. It actually also applied to TYSABRI. And then with respect to
TYSABRI and keep in mind I think its twofold of whats going on including the impact of
additional free patients in the TYSABRI business. So that one for me is likely harder to predict.
And who knows. It could go up or could come right back down. But both of those effects are
affecting the revenue per patient on the TYSABRI business. But absent that, that dynamic, its
probably not a bad thing to model.
Our next question comes from James Zhang from BMO Capital Markets.
Jason Zhang BMO Capital Markets
Thanks. The question is on the economic impact that you mentioned on patients freezed or
increased. There are also probably more patients need to get co-pay assistance. Im wondering for
co-pay assistance, how is that affecting revenues? Is that because of delayed reimbursement or
delayed infusion? How is that? And you gave us the number about freezing the impact of that could
be $6 million to $10 million. Can you actually quantify the impact of co-pay assistance? Also
whether you think this is going to get worse or mostly be a Q1 phenomena?
So this is Bill. With co-pay assistance, that is something which is actually a program which
for AVONEX launched last year and TYSABRI really this year. And we certainly have made provisions
in planning, thinking that its going to be a program that will be utilized this year. And so far,
were still in the early stages of it. And the feedbacks been very positive. And, well continue
to track it as the quarters go on and compare it to the economic environment.
Our next question comes from Maged Shenouda with UBS.
Maged Shenouda UBS
How much more pricing leverage do you think you have for AVONEX? And also should we start
thinking about aggressive price increases for TYSABRI?
Maged, we actually dont comment on our forward-looking pricing. So I think best thing I can
share with you is that we dont build it into our business plans, the price increases that weve
On the TYSABRI, keep if mind that, you know, that that keep in mind that that one is
going to be ASP plus six kind of pricing. You really have to be careful about pricing increases
there, the frequency and the amount. Or you can put the physicians under water.
(Operator Instructions). Our next question comes from Chris Raymond with Robert W. Baird and
Chris Raymond Robert W Baird & Company
Thanks for taking the question. I know you guys have have answered this question on prior
conference calls, but can you walk through actually the mechanism I think you mentioned before
you have some a natural hedge of
sorts against FX fluctuations. But you mentioned $30 million of
AVONEX FX impact. Could you maybe also reiterate what the TYSABRI FX impact was and then also
two-part question here obviously. Describe what that hedge is, thanks.
Yes. Okay. So in total it was about $40 million. That was $30 million for AVONEX
International, the balance of $10 million or $11 million for TYSABRI International was the impact
on the quarter, 2009 versus quarter 2008, from essentially going from, you know, 1.51 on average US
to Euro to 1.31 on average in Q1 2009. We hedge our business, generally speaking, we hedge the
annual plan. We generally do that as we get conclusion on our annual plan. So its usually late in
one year, well go out and hedge the following year. And we buy contracts that essentially try to
to hedge the cash flow impact to the business. So the natural hedge so it wouldnt hedge the
The natural hedge that we have is essentially our sales and marketing in G&A infrastructure thats
in Europe and other parts of the world and some modest amount of our R&D business. The impact in Q1
versus Q 2009 versus Q1, 2008, that we benefited was roughly less than half of the amount that
was detrimental to us on a quarter-to-quarter basis on the top line. So, in essence we picked up
probably $15 million or $17 million on a quarter-to-quarter basis in operating expenses.
As a result, the difference between the two is what from earnings per share, that $0.04, $0.03
or $0.04 is what the impact was on a quarter-to-quarter basis earnings per share. All of the hedge
gains and losses are netted against the AVONEX International business. So there are quarters where
we have a hedge gain. If we had if we had locked in numbers that that were above or below and
vice-versa that we have hedge losses. In Q1, 2009, it was essentially deminimus. Hope that helps.
Our next question is a follow-up from Michael Aberman with Credit Suisse.
Michael Aberman Credit Suisse
Hey, sorry. I I didnt get to ask multiple questions in one sentence. So Im getting back
in queue. But I many of then have been asked and answered. I guess I have a housekeeping
question. On the other income maybe this has already been addressed. But youve had some losses
over the past few quarters.
Michael Aberman Credit Suisse
And do you have a benefit this quarter can you explain to us where thats coming from. What
we should expect going forward? Whats happening there?
Yes. I think that the run rate we saw in this quarter is a little bit high. I would expect it
to It was a $7 million benefit OIE. I would expect that to be down a little bit for Q2, 3, and
4. And not because of any meaningful writeoffs. Just because we picked up a little bit on some
stuff thats outside of interest income and interest expense. Just a couple million dollars. We are
our portfolio is in a very conservative position right now of $2.5 billion of cash and
marketable securities. Close to 85% of that is in government, agency backed or cash and money
We are now down at the end of the first quarter to $22 million in non-agency mortgage-backed
securities. And, have a commitment to our company and our board to kind of get out of that in an
orderly fashion. So what we saw in the
back half of the year, were hopeful that we wont see
anything of any kind meaningful going forward. The only caution I point is that we do have
strategic investments in public and private biotech companies that we do for strategic reasons. And
those can ebb and flow over the course of multiple years.
And our next question is a follow-up from Geoff Meacham with JPMorgan.
Geoffrey Meacham JPMorgan
Yes, thanks for the follow-up. Question for you on TYSABRI. When you guys give the net adds,
obviously its new starts minus discontinuations. Im wondering how you classify a discontinuation
versus a simple dose skip. Is there a certain amount of doses that a patient missed to be charged
against the net add number?
We got it.
Yes. So what we do is we and this is, again, very specific to the US with TOUCH because we
have obviously greater insight with the with the data we received through that program. And we
have if a patient has missed a certain number of days of from their expected infusion at the
30-day mark where we would expect them, if it extendS out beyond that to beyond 45, 60 days and
beyond, we start to classify that as a potential that they arent coming back. What we do,
though, is through the TOUCH program, we do reach out, and we look for confirmation. And a
discontinuation form is actually sent in. And that is truly what what we ultimately measure.
Geoffrey Meacham JPMorgan
Okay. Helpful, thank you.
Geoff Id just add, we also kind of triangulate on the question youre asking. We also look
at the average time of the whole patient data base between doses. And that has not shown a
meaningful change. So that would show a meaningful change if weve got patients in our data base
that, really arent patients anymore I think is what you get. On the international front, we we
use a combination of patient registries where we can get them. And then looking at shipping data
into physicians where where we obviously have it, and build our patient data base and our
patient expectations based on that. That that actually as a result lines very much up with
shipments. So, its not going to be suspect to kind of this type of issue that were talking
And our next question is a follow-up from Mark Hillenbaum with Deutsche Bank.
Mark Hillenbaum Deutsche Bank
Okay, thanks for taking my follow-up. On Europe, the ex-US AVONEX number, a little below
consensus. And you mentioned FX, I was wondering if you could comment on price. Novartis launched a
new version of an old beta interferon over there. Has there been any increase in net price over the
big European markets?
No. In fact, Mark, weve actually seen some price advances in Germany. And weve managed
weve managed over the last lets probably call it 18 months to realize price advances from trying
to control some some parallel trade between a couple of the countries. Now over the next couple
of years, Id say that we need to be were watching it as each country in different times in
different stages actually comes up for renewal on the reimbursement front. So we we are watching
that. Related to the competitive threat of Extavia, we have our ear to the ground. Salespeople are
very focused on it, but it has not had a meaningful impact yet.
Operator, I think we have time for maybe, at most two questions.
Our next question is a follow-up from May-Kin Ho with Goldman Sachs.
May-Kin Ho Goldman Sachs
Hi, this May-Kin, this is a short question. I dont know that I heard correctly. Did you say
that you are actually going to file the FDA application on volociximab?
No, we were talking about Reach and CLL8.
May-Kin Ho Goldman Sachs
May-Kin Ho Goldman Sachs
Okay. Thank you.
Sure. Last question.
Our final question comes from Yahn Weber with Citi.
Yaron Werber Cititbank
Hi. Can you? One of the things Im just looking at is your youve talked over time to show
operating leverage. Im just trying to understand as we look help us understand a little bit the
SG&A line. From what I understand, your business pretty much is fully scaled up from an expense
perspective, so you can just lever that up from now on. Can you just help us understand how is that
going to flow over the on a quarterly progression sort of, showing synergies there or showing
improvements there? Im referring to the SG&A spending.
Yes. So this is Jim. So the SG&A spending, I mean we expect to get some modest leverage on
that of course as the sales increase. But I think the caution on that of course is, that we also
have to be very careful that we maintain a strong competitive position on share of voice, because
we know share of voice moves the market around over time. So, sometimes well be doing some modest
adjustments to the resource levels as we look at just whatever the new competitive framework might
be. But, we would seem to get modest leverage there over time. I wouldnt expect to see dramatic
leverage, though. I guess is what I would say. Paul, do you have
Well, thank you, everyone. It was nice to be able to take so many questions on the call today.
Well see you on our next earnings call. Thank you.
This concludes todays conference call. You may now disconnect.