Biogen Inc.
Q4 2006 Earnings Call Transcript

Published: 15 Feb 2007

[Operator:]

Hi, I would like to welcome everyone to the Biogen Idec fourth quarter and full year 2006 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number 1 on your telephone keypad. If you would like to withdraw your question, press star and the number 2 on your telephone keypad. Thank you. I will now turn the conference over to Miss Elizabeth Woo, Vice president of Investor Relations. You may begin your conference.

[Elizabeth Woo:]

Good morning everyone, thanks for joining us today. Welcome to Biogen Idec earnings conference call for the fourth quarter and year end 2006. Before we begin, I would urge everyone to go to the investor relations section of our website at biogenidec.com and print out the press release and the accompanying table. It'll make it easier to follow along when our CFO, Peter Kellogg reviews the financial results and the reconciliation to non-GAAP financial measures discussed today. We're continuing the practice we introduced during our third quarter conference call of posting slides in our website that follow the topics on the call today. I'll begin with the Safe Harbor statement. Comments made in this conference call include forward looking statements about the company's expectations regarding future financial results, including our financial guidance for 2007 and future growth rate, the launching potential of Tysabri in MS and Rituxan in RA, pricing and reimbursing for Tysabri, and plans for external growth and pipeline growth. Such statements are subject to risks and uncertainties which could cause actual results to differ materially. In particular, careful consideration should be given to the uncertainties that are described in the earnings release and in the risk factor section of the company's quarterly report on form 10Q, for the fiscal quarter ended September 30th 2006 and other periodic and current report Biogen Idec has filed with the securities and exchanges commission. The company does not undertake any obligation to publicly update any forward looking statements. On today's call, we have Jim Mullen, CEO of Biogen Idec, Bob Hamm, Senior Vice President, Neurology Business Unit and Peter Kellogg, CFO and Executive Vice President, Finance. I will now turn the call over to Jim.

[James C. Mullen:]

Thank you Elizabeth, thank you everyone for joining us this morning. This is the Q4 and full year earnings call. I want to put some context around the financial results and summarize the year that past as well as the year ahead. We made some nice progress on the court road, we saw regular approvals for Rituxan and rheumatoid arthritis in both the US and Europe, and I think the launch has been very successful and it also demonstrates our ability to rapidly and effectively build sales and infrastructure in the new special therapeutic area. In addition to that, we saw three new indications for Rituxan. As everyone on this call is I'm sure aware, Tysabri was re-introduced to the US, approved for the first time in the EU, and I'm particularly proud of the dedicated team effort to bring Tysabri back. In the unwavering belief by the team that patients deserve a more application option. And then finally, Avonex was introduced in Japan this year which is a part of our strategy to continue to increase our global footprint. We also had a very strong momentum in the business development area. This was easily the most productive year in business development in our history. This follows the late 2005 restructuring which gave us the flexibility for greater investment in external opportunities on our pipeline you'll see in the press release, and press releases throughout the year, but I'll highlight just the larger of those deals. So the acquisition of Primapharm and the acquisition of Conforma gave us the HSP90 platform licensing agreement with Mondobiotech and Aviptadil, licensing agreements and collaboration agreements with UCD and CDP323, which is an oral team inhibitor, the agreement with Alnylam which should work on JC virus and of course the acquisition of Syntonix which takes us into the hemophilia area. And of course with that and with the agreement with Mondobiotech we will enter into two more specialty areas. We also made significant pipeline progress in the last 12 months. Just to emphasis three press releases we recently put out on BG-12 starting phase 312 in MS. Galiximab started the registration trial Lumiliximab starting registration trials in COL. So those have begun, all three of those. And perhaps most importantly, we've added talent really throughout the organization. I'll just highlight two who I think you're all familiar with. David Parkinson, who is leading out the oncology therapeutic area, has responsibility for all the R&D programs in oncology. Cecil Pickett, who came to us as president of R&D, and I think that's significantly strengthens some of the senior leadership in our R&D area. Cecil will join us on the Q1 call and he will also host a R&D day on May 17th where we will take you all for a pipeline product by product in greatly more detail. I think 2005-2006 really demonstrated our ability as a company to navigate the choppy waters and still deliver long term financial results. You saw the 11% revenue growth in 2006, 43% expansion of EPS on non-GAAP basis, and 34% on GAAP basis. Good performance on Avonex and of Rituxan of 14%, and a strong launch in rheumatoid-arthritis and Rituxan. We are on track to achieve our 20% non-GAAP EPS compounded growth goal for the period 2006-2007. Through the end of 2006 we are at 23% compound and EPS growth and 13% on the revenue. So, Peter will walk you through guidance for 2007 after he discusses the financial results for 2006. And after a couple of choppy years, I think, we feel like we're right back on course. We’re on the market in the US and launching for the first time in Europe and I think you'll see from Peter's guidance, we're in good shape to hit our financial goals. I want to make a couple of comments around Tysabri before I turn the call over to Bob Hamm, who'll take you into a bit more details. We are as we turn over in the New Year, shipping the commercial focus to really begin spending time on the benefits. To take you back, the first phase of this launch, the first six months, were preparing the foundation, educating on the touch program in the US and discussing the new label and the risk issues both in the US and Europe. We have now initiated full force what we call phase two of the launch which is to emphasize and reinforce the efficacy message and continue to broaden up the use. And just to remind everybody, we continue to believe that Tysabri will equip all of the other MS therapies over time as there's still significant room for growth in this marketplace. The patients need more efficacy, they want fewer side effects and they desire less frequent dosing and Tysabri competing for all these needs. And as I'm sure you saw in the press release we're now approaching 10 000 patients on therapy. Furthermore we are looking into indications for Tysabri, and we'll continue to talk about that as the year goes on. Bob will fill you in on Tysabri and more of the details and metrics, and I know you're anxious to get to those metrics, but I want to read you excerpts from one letter I received which highlights the daily struggles of a MS patient and the quality of life benefits of Tysabri. And this letter was written by Doctor Macalusso, Dr. Macalusso is a treating neurologist and also an MS patient taking Tysabri. And I quote, and I'm excerpting in the interest of time, but I'm going to read three excerpts. "Tysabri has given me my life, many parts of my life back. It took away my daily headaches so now I can wholeheartedly look forward to tomorrow. It has reduced the swelling in my brain so now I can concentrate on what I want to do and not be bothered by the piece of paper that fell on the floor or the garbage truck that just passed while trying to read or write. I concentrate on the movie or TV show that I've been looking forward too and then be able to relate what I saw to someone with whom I want to share the happiness." It goes on the letter and a little bit further along he says

[Bob Hamm:]

Thank you, Jim. I think it's important that before we get into the details on the metrics, to talk about what brought us to this point in time. And through the collaboration with the FDA, we established a touch program, embodying a risk map which was a complex and important tool to appropriately and systematically measure and understand Tysabri for the long term. To that end it was very important that we systematically and consistently deliver all the information regarding such a program. And so we assembled a small team from Elon and Biogen Idec that would systematically go out to all the major centers and roll out the touch program to ensure that consistency. So as we sit here today the initial roll out touch program has been completed for all the major centers and neurology practices representing more than 50% of the treated patients in the US which we believe to be a number of about 220,000 or so. It's important to note that despite the fact that it's merely two years, or will be two years and two weeks since we voluntarily suspended Tysabri, the fundamental market conditions have not changed. As Jim related, patients are still seeking alternative existing products in the market place. The returning act of quitting therapy created momentum for Tysabri which should continue throughout 2007. Patients are switching from all approved therapies. Recent US trends show Copaxone being cannibalized to the greatest extent. As a press release states, and Jim related, patients describe Tysabri as approaching 10,000 patients total. Almost 1,600 international patients are on therapy, nearly 5,000 patients on therapy in the US, and another 3,000 patients in the EU. Also, I want to add that a global run rate of a little over 300 patients being added per week has been going on. And this is a number we hope of course will increase with the number of countries with reimbursement and a number of physicians prescribing our products throughout 2007. So now I'll go into the metrics in a little more detail. Let's start with international. Nearly 1,600 patients are being treated internationally, Germany representing the majority with 75% or so of patients being treated. In Germany net new patients have risen more than 30% per week since January 1st. The Tysabri international launch began in July, 2006 in Germany and in Ireland. Launches initiated in nine international countries as of year-end 2006. Full reimbursement countries will likely roll out throughout the 2007 and into the 2008 time frame. Italy and Canada officially launched in January, Luxembourg and France are next countries to launch. In all, 15 EU countries will be launched by the end of the year. This should provide significant breadth and use of Tysabri that should grow throughout 2007 and into 2008. Another way to look at the international picture is to state that as of today we are currently able to access about half of the relapsed remaining population in the EU, Canada, and Australia. So of course we'll grow as the other countries come up. Turning to the US, as I've mentioned we have transitioned from the first days of the launch which was the systematic roll out of the touch program to ensure the physicians and patients were well informed about Tysabri. And by and large it has been very well received and very well executed. And so now we're in the second phase of the launch providing fair balance in discussing the advocacy of the product represented by two of the largest trials ever conducted in mass and contained in our label. Specific clinical results

[Peter N. Kellogg:]

Thank you, Bob. Let me first remind everyone that we provide Table 3 of our Earnings Release as a reconciliation of the GAAP to non-GAAP financial results. The GAAP results are provided in Tables 1 and 2. The main items excluded from the operating GAAP in Q4 were

[James C. Mullen:]

Thanks, Peter. And I’ll be very brief with the close before we Q&A. 2007, the key drivers I think are certainly the performance on Tysabri and driving the performance of Tysabri in the US and the EU and continue to roll that out and talk about the benefits in very balanced fashion is our number one goal. We’d like to also extend and continue the momentum we’ve seen on the business development side. We’ve seen a lot of interesting opportunities there to augment our pipelines that can help us in the near-term and the medium-term. On our own pipeline, we are initiating several proof-of-concept trials, with Wolfotoxin Beta Receptor and RA, the Oral VLA4 inhibitor that we have in partnership with UCB, M200 and Renal Cell Carcinoma Ovarian and Non Small Cell Lung Cancer, those three trials, and that with partnership with PDL and the oral A2A Receptor Antagonist Parkinson’s disease, which is a licensed product for Grenalis. Just to remind you all, I mentioned it earlier in the call, but we will have an R&D day hosted by Cecil Pickett on May 17th, and we hope to see as many of you there as possible. I think this pipeline has significantly advanced the organic pipeline, what we brought forth for research and momentum there. You’ll see a clearly impressive lineup of products. And we need to do all that of course in the context, as we have in the last number of years, delivering in the financial results that build towards our long-term growth goals. So with that let me turn it to Elizabeth and we begin tune-up for the Q&A.

[Elizabeth Woo:]

Yes. I just want to advise... for the Q&A we have joining us Dr. David Parkinson, our Senior Vice President Oncology R&D, Dr. Al Sandrock, our Senior V.P. of Neurology R&D, and also Christine Hasnin, as V.P. of the Oncology Rheumatology Business Unit. So, operator, we would like to open our calls to Q&A, and as our usual practice, I would like to ask those asking questions to limit themselves to one question per person. If you have follow-up questions, please re-enter the queue and ask your question later on. This practice allows as many people as possible to get their questions in. So operator, please go ahead and take the first question.

[Operator:]

At this time I would like to remind everyone, if you would like to ask a question, press # then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Geoffrey Porges of Stanford Bernstein.

[Geoffrey Porges:]

Thank you very much for taking the question. I’m sure there’d be lots of questions on Tysabri. I’d just like to ask a question on Rituxan. There’s been a lot of talk about the step-down on the royalty or the revenue share in the future. I’m just wondering if you could give us a sense of when you’re planning for the occurrence of that, and how that might occur in a progressive fashion or one time...what sort of impact that could have? Thanks.

[Peter N. Kellogg:]

Jeff, it’s Peter. I’ll take a first stab at that. That’s a function of when we have our first launch of one of our follow-up humanized programs. And obviously we are working on a number of different programs, a number of different indications. So it will be some time in the early part of the next decade, obviously, not near-term. I mean, I just remind everybody that step-down occurs over a number of different years, you know, at minimum three, but it could be more. It’s just a question of how fast the sales of that new product ramp up. You know, we’ve disclosed that and that’s something that we’ve been talking about for some time. You know, I think that one of the key features of that, that we are pretty excited about, furthering the CD20 program, expanding it. And obviously these additional new programs are being targeted for new indication. A lot of immunological indications obviously...with the original Rituxan is in RA right now, but we’re looking at MS and Lupus and other things. So we would expect all franchises to benefit from the next-generation drug and to really expand. So, obviously, yes, we’re getting a slightly lower cut at the overall profit share in the US, but it’s of a much bigger market, hopefully, because this would be the next generation drug. That would be pretty exciting. And I also remind you that obviously the new drugs would also have a very long intellectual-property life. They’ve been developed with a lot of investment in the last few years. So I think it’s kind of a, you know, it’s a mixed analysis you have to look at. But we’re pretty comfortable with all that. We’ve factored it into our long-range planning. It’s part of the franchise relationship, and, you know, I think we’re working with Gen Idec on that.

[Geoffrey Porges:]

Thank you very much.

[Operator:]

The next question comes from Geoff Meacham of J.P. Morgan.

[Geoffrey Meacham:]

Hi, and thanks for taking the question. A couple on Tysabri. Given the recent focus to promote the drug actively on efficacy in January, can you give us a sense of the rate of patient ads to touch since January? And then just a quick follow-up

[Bob Hamm:]

Yeah, this is Bob, thank you. On the question of the latest transit, as I mentioned, we’re running about 300 patients a week worldwide. I think another good measure is we conduct frequent market research. Our market research for January, which is a sampling of a couple of hundred physicians with different practice approaches indicates about 25% have been trained but have not been sent forms yet, but 70% expect to do so. And so we expect our prescriber base to grow and consequently we had hoped that we'd see an increase in the trends that I had talked about. With respect to the number of infusions, I guess I'm...maybe someone else here has more clarity on what you're getting at. I don't quite know how to characterize that. We talked about the total number of patients and infusions that follow suit. The number of patients we're talking about are net of a small group that have actually just continued therapy so if you track the patients that gives you the infusions. And I'd also comment that some of the discussion we've had about, you know, moving through the touch form training and the risk benefit communication, really a lot of the swing in momentum is occurring in January as we roll forward. So if you look at the Q4 Operating results, it's not really in there that much.

[James C. Mullen:]

This is Jim. I'd like to have an expectation…there's not a lot of product in the downstream pipeline and because we and Elon are booking at the same time, I think you can sort of back up with a relatively modest time lag and figure out the number of infusions just from the revenue dollars.

[Geoffrey Meacham:]

Okay, thank you.

[Operator:]

Your next question comes from Michael Aberman with Credit Suisse.

[Michael Aberman:]

Hey guys. Hey there?

[James C. Mullen:]

Yep, yep.

[Michael Aberman:]

Sorry, thanks. I wonder if you could comment…Genotech had mentioned that the arbitration was ongoing and I think they said it would be available within weeks on their conference call. Can you give us an update of where the arbitration stands for the next generation of CD20 and when you might see an outcome and how that could play out in terms of you moving forward with Rituxan or a novel agent, a novel CD20 for MS?

[James C. Mullen:]

Sure, this is Jim. So I'm going to start in reverse order to the question. So the programs continue in the climb so that's probably the most important thing. Both 2A7 continues to move forward in clinic trials in version 114 and in the dispute overall its around decision making rights. And as you can probably appreciate, with the number of molecules that Genotech has under development as well as the competitive circumstances that will change relatively rapidly over the next number of years. The strategy of how those get developed and how that all fits together commercially is important and frankly that's where a lot of debate is. And I wouldn't go further than that to say. In terms of the arbitration, it is a very typical arbitration proceeding so there's one person chosen by us, one by Genotech, and to choose the third person, they listen to the first sets of motions at this point in time. And they're thinking about those motions...so you know it’s still very much in the preliminary stage at least from our viewpoint. The only other thing that I would add , you know, our expectation is this is going to play out over a number of months and the pace of it is impossible to predict at least in my experience with arbitration. The one thing I do want to, and I'm glad you asked the question, so in the category of no surprises, and you guys will see it in our 10K…Recently in the arbitration proceedings Genotech alleged for the first time, that the November 2003 transaction in which Idec acquired Biogen, it became Biogen Idec, constituted a change in control and that's of course an assertion that was strongly disagreed with. The amended and restated collaboration agreement with Genotech provided that in the event that we do undergo a change of control, within 90 days Genotech may present an offer to us to purchase our rights for Rituxan. So again, first time that this has been asserted the 90 day window has passed about three years ago. So I don’t know exactly where that goes, but you will see it nevertheless disclosed in the pamphlet of the new item.

[Michael Aberman:]

I know that this is follow up, I guess. What could the outcomes be? Is there a win or a lose situation for you? What should we expect when this arbitration is over?

[James C. Mullen:]

As I have said before, we have a relationship at the very broad collaboration relationship, with Genotech. It is going to go on for as long as there are sales of products. And therefore, we feel we need to have clarity on these decision rights and really that is why the arbitration is around, clarifying the decision rights of the two parties so that we can close up on that and operate as frictionless a relationship as possible for the rest of the sales as long as sales continue in any of these products. So I just view it as an investment in clarifying the future.

[Michael Aberman:]

Thank you.

[Operator:]

Your next question comes from Gene Mack with HSBC Securities.

[Gene Mack:]

Thanks for taking my question. I was just wondering quickly when we might get data on Tysabri re-treatment for those patients who were stopped originally?

[James C. Mullen:]

Fine, Gene, what we know of course from the touch program is a lot of details about the patient returning. What we don't really know in terms of the patients that were involved in the first launch, is all of those numbers, simply because they weren't required to be part of this discipline program at the first launch. And there wasn't a tracking method. What we believe, what we know rather than what we believe, what we know is that about 30% of touch form (inaudible) for patients that were involved in the first launch. But again it's hard to reconcile those numbers given the lack of visibility during the first launch.

[Gene Mack:]

Do you know anything about neutralizing antibodies at this point?

[James C. Mullen:]

Uh no.

[Gene Mack:]

Thanks.

[Operator:]

Your next question comes from Joel Sendek with Lazard Capital Markets.

[Joel Sendek:]

Thanks. I have a question about the business bill and spending guidance. I'm wondering how you got to the $100 million. Is that the leftovers from the $200 million budget for 2006? And is any variability in that $100 million spend for '07 embedded in the $250-265 guidance? So, in other words, if you spend more or less could you be outside the $250-265 million mark? Thanks.

[Peter N. Kellogg:]

Okay. Let me take the corrected data. Of course, you know, we talked a year ago about this $200 million number as being the elbow room that we left ourselves on the P&L to really bring in business development. And that is very much, if you will, across the sum from business development deals what kind of impact would it have on the P&L. Of course you saw the number of deals we did, the majority of the impact was actually on the balance sheet during the course of this year. However, because we are going to continue, and we do believe this is a core part of our business model, you know, we are going to leave ourselves a fair bit of elbow room to take advantage of external opportunities as we go forward. Now the specifics of what goes into the $100 million that was consumed on the P&L. It is all of the current burn rate for those programs that were brought in plus all of the milestone payments, and any other payment that may go back and forth between the parties. And those, of course, generally are pretty lumpy. At least the milestone payments via front payments tend to come very lumpy. It's all subject to negotiation. They're very hard to predict and they're idiosyncratic. They're just kind of whatever the feel is. The ongoing burn rate obviously is a little easier to predict. But I think we're not going to call out necessarily the specific number that we've left in the budget going forward but more to tell you that, you know, we intend to continue in business development at the same kind of rates that you saw in 2006, and hopefully with at least that much success or more. If we get to a deal or an opportunity that we think it's going to take us outside that band, then we'll be back talking to you in terms of the earnings then and you know of course you're going to want to know why that's good for you.

[Joel Sendek:]

Thanks.

[Operator:]

Your next question comes from Mark Schoenebaum of Bear Stearns.

[Mark Schoenebaum:]

Hi. Thanks a lot for taking my question. I appreciate it. Quick question. I was intrigued by Jim's early remarks on a call about, I think you said you still expect to sort of eclipse all other MS therapies. Are you talking in terms of patients or dollars?

[James C. Mullen:]

Uh, yes.

[Mark Schoenebaum:]

So if you're talking in terms of patients giving placing that implies well over $3 billion? Is my math correct?

[James C. Mullen:]

You know, let me put a broad context around this. So, you know, of course the big uncertainty in the market place, the big question that many of the neurologists and many of the patients are saying is what is going to be the full safety experience of Tysabri, as it gets into a broad number of patients. And so, you know, we all have to stand back and see what that safety experience turns out to be. The safety program and some of the other programs that we’re conducting obviously give a much more precise insight into that as things unfold, and probably any other product that’s on the market, with the exception of Solidimy or something like that. So we’re going to have a great deal of insight into that. Now, presuming that the safety profile... so, this is, you know, a critical assumption... safety profile that is not meaningfully different…by that I mean worse than what’s in the current label... I think people are going to get comfort as we go. I mean, and the comfort will come because of sheer numbers of patients as well as when and if we’ll see... and it’s in the label, so we expect to see additional cases of P&L, that we can understand much more precisely what the risk factors involved with P&L. Now, if you look at where we are right now, somewhere in the middle part of the year, we will have administered more infusions for Tysabri than at the point time that the product was drawn from the market. You know, as we close out this year more patients will have been on for greater than a year, than at the point in time that the product was suspended from the market. And you can march on from there to get to 18 months, two years data. So we are going to accumulate a lot of that experience in the next 12 months, and I think that based on that data, people will draw their own conclusions. But, assuming that it’s not meaningfully different or worse than the current label, I continue to believe that demand for this product is so strong, the need in this community is such, that the patient numbers will eclipse in the other individual products over time and as will revenue.

[Mark Schoenebaum:]

Would that be this decade?

[James C. Mullen:]

It could be...ramp rate is always hard to predict. But we’re going to move through, The safety question gets answered, you know, by the end of 2008.

[Mark Schoenebaum:]

Thanks. I appreciate it.

[Operator:]

The next question comes from Bill Tanner with Leerink Swann

[William Tanner:]

Thanks. The next question may be quite along the same lines for you, Jim, or maybe for Al. Sounds like there’s some, at least a couple of trials, one trial being conducted to look at the impact of Pherisis on removing or decreasing Tysabri in MS patients...maybe sounds like dated later this year. I wonder where this goes from against a regulatory standpoint or from the perspective of how you guys see it being...were the data positive beneficial in terms of providing increased comfort for physicians to use the drugs?

[James C. Mullen:]

Sure, Bill. We’re going to see how our conferencing capabilities work, and I’m hoping Al is actually on the line, sitting in San Diego. Al, are you on the line?

[Dr. Al Sandrock:]

Yes, I am.

[James C. Mullen:]

Oh, great. You want to handle that one?

[Dr. Al Sandrock:]

Yeah. So the Pherisis program is one of several approaches we’re taking to see if we can reduce the disability that could result from P&L, should it occur. We will get information about whether or not we can effectively remove Tysabri. And we believe that a yearly constitution is the best way to deal with P&L and we hope to have an I&D in place, so that if people get P&L, they could be treated with Pherisis and perhaps some other approaches that we’re also examining.

[Bill Tanner:]

And that would also include the interferon, I presume.

[Dr. Al Sandrock:]

Yes.

[William Tanner:]

Thanks.

[Operator:]

Your next question comes from Jason Kantor with R.B.C. Capital.

[Jason Kantor:]

Hi, can you hear me? I was interested in this runway that you mentioned, the 300 patients per week. Where is that primarily coming from? Where do you think the growth in that is likely to come from? And how high do you think that number could get in 2007?

[James C. Mullen:]

Well, let me take you first question. The patients to date are...the stats we receive today is what we’re getting in from information in Europe is that they’re coming from obviously the (inaudible) in terms of the current products, and about 31% are coming from other sources, such as returning quitters. We define a quitter as someone who has been off therapy for a minimum of like six months. Then about 11% are coming from other products beyond the AVCR. Because in the last two years, obviously, physicians have tried to find other ways to fill the gap that the Tysabri withdrawal represented. In terms of where the number grows to, again, I think it’s just a function of what we’ve talked about in terms of increasing countries coming up and the increasing prescriber base, as mentioned, the safety picture evolving over time.

[Jason Kantor:]

But that 300 number was a world-wide new number of patients per week, or is that...

[James C. Mullen:]

Yeah, that’s a global figure.

[Jason Kantor:]

With the patients in the queue right now, what’s the, you know, how fast do you turn people through that queue? Is that speeding up and what is the current, you know...

[James C. Mullen:]

That applies, of course, to the US and the Touch Program. What we’re seeing is an average of 19 days from Receive and Touch Program to infusion for folks. And that’s a credit to the pairs, who view the Touch Program, which controls the two things they’re most concerned about, once they’re convinced of the efficacy. Number one is the inappropriate use of the drug, which the touch program largely eliminates through the discipline imposed. And secondly is the compliance of the product in the terms of how we track it and what not. That’s why the pairs are moving through pretty quickly on the main. We expect to see that there are a reasonable number of neurologists that are currently on the sidelines right now in the US. There are the groups that I’ll reference that hadn’t prescribed but had indicated intent to prescribe relatively soon. And in Europe right now we’re really only into 50% of the market, so we would expect with the geographic expansion as well to start to see some expansion. How high this goes I think is very difficult to predict. I think a lot of it has to do with trying to predict the confidence that people have and that’s going to get driven by factors that frankly we don’t control.

[Jason Kantor:]

Thanks.

[Operator:]

Our next question comes from May-Kin Ho of Goldman Sachs.

[May-Kin Ho:]

Hi. Can you talk a little bit about bio-similars, especially launch of the interferon?

[James C. Mullen:]

May-Kin, we heard the beginning of that question about bio-similars. Can you repeat the second part?

[May-Kin Ho:]

Oh, sorry. I was just asking what you can tell about bio-similars for interferons and the potential launch of them in Europe and what are you doing to prepare for that.

[James C. Mullen:]

Yeah, the bio-similars. Our expectation is that we will see one in the next couple of years. Initial plans and initial trials that were conducted were with the 22 micrograms that was trying to mimic that interferon. So they’ve got some more trial work to do, because that’s probably the one category that’s getting the most crowded out in the marketplace in terms of utilization. So from that perspective I don’t see an immediate or huge impact market. In terms of what we’re doing to get prepared – most of that I’m not going to talk about for tentative reasons, the obvious ones are innovation, which, you know, Bob listed Tysabri and a long list of other products that we hope will change the whole paradigm in the game over time. We are also doing things with thebusiness and the products there to manage the life cycle of that product and those are initiatives that I cannot disclose for competitive reasons.

[Elizabeth Woo:]

Operator, I’m seeing that we’ve gone past the hour. We’ll take one last question.

[Operator:]

The final question from Steve Bahar from Morgan Stanley.

[Steve Bahar:]

Good morning. Can any of you guys address, on the accounting side, you said that part of your business development...so you are going to include that in your financials? But it seems that another important part of your ongoing business plans are the small acquisitions, you’re not including those in your financial statements. So how do you think through this and when would you consider putting these recurring charges into your ongoing business thoughts?

[Peter N. Kellogg:]

Well, I think, just to clarify, when do buy a business, obviously the operating financials of the business rolls into our P&L. That's part of our ongoing activity. Generally, what we have been highlighting in Table 3, and extracting out of the non-GAAP P&L, are the purchase accounting charges. So that's primarily the up-front, in-process R&D charge that relates to the initial acquisition. Frankly, the other thing that's in there is the amortization and tangibles, and a lot of these early stage companies that we're acquiring don't really have much to identify as a tangible because most of their work is really staged as in-process R&D. So, the amortization and tangibles is basically most of what you'd see on our P&L there on the GAAP side is for the original Biogen and Idec merger, and its just the accounting basis for identifying the intangible related to Adamec, quite frankly, and amortizing that over time. So, that's an accounting convention, and we just haven't been including that in the non-GAAP performance. And I think that, actually, as you look across the biotech industry, and in a lot of industries, you would see that that, you know, similar treatment is done as people think about communicating the ongoing financial performance of the company, so people can get a real sense of, you know, real cash-flow kind of items, real cash items, as opposed to accounting charges that are kind-of unique to that acquisition. So, the primary charge that we see on an ongoing basis relates back to the Biogen Idec merger, that amortization of the (inaudible).

[Steve Bahar:]

I guess if you were to look across a broader swath of companies that could do frequent acquisitions of that size, you might see them in the P&L, and there is a cash charge obviously to making acquisitions with your cash.

[James C. Mullen:]

Yeah, this is Jim. Most of the, well, all of those right to the (inaudible) are either intangible, right down, or is in-process R&D. And conceptually, if you think about how you guys value a company today, you are putting a value on that in-process R&D. Just the accounting convention is, when we acquire it, we just have to write it all off. So, however you want to look at that, and then the premium that we may pay over whatever the current market value is, you know in the old-fashioned days, that would have just been stuck under good will. And then we would look at impairment over time. So, we are doing that, and that does flow down through the rest of the operating P&L.

[Steve Bahar:]

Great, thank you.

[James C. Mullen:]

I think we have pretty-much gone over time.

[Elizabeth Woo:]

Yeah, thanks to everyone for joining us on the call today. Operator, you can close out the call. Thank you.

[Operator:]

Thank you for your participation. You may now disconnect.