Biogen Inc.
Q4 2016 Earnings Call Transcript

Published: 26 Jan 2017

[Operator:]

Good morning, my name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen fourth quarter and year-end 2016 financial results and business update. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Mr. Matt Calistri, Senior Director of Investor Relations. Please go ahead.

[Matthew Calistri:]

Thank you, and welcome to Biogen's fourth quarter and full-year 2016 earnings conference call. Before we begin, I encourage everyone to go to the Investors section of biogen.com to find the press release and related financial tables, including a reconciliation of GAAP to non-GAAP financial measures that we'll discuss today. Our GAAP financials are provided in Tables 1 and 2. Table 3 includes a reconciliation of our GAAP to non-GAAP financial results. We believe non-GAAP financial results better represent the ongoing economics of our business and reflect how we manage the business internally. We have also posted slides on our website that follow the discussions related to this call. I would like to point out that we will be making forward-looking statements which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. On today's call, I'm joined by our Chief Executive Officer, Michel Vounatsos; Dr. Michael Ehlers, EVP of Research and Development; and our CFO, Paul Clancy. We'll also be joined for the Q&A portion of the call by our Chief Medical Officer, Dr. Al Sandrock. Now I'll turn the call over to Michel.

[Michel Vounatsos:]

Thank you, Matt. Good morning, everyone, and thank you for joining us. In 2016, Biogen generated revenues of $11.4 billion, a 6% increase over 2015 and, on a constant currency basis, an increase of 9%. GAAP earnings were $16.93 a share, a 10% increase year-over-year, and on non-GAAP EPS was $20.22, a 19% increase versus full-year 2015. I am proud that the team was able to deliver such a strong results, and I aim to building on Biogen impressive track record as we move forward. 2016 was an eventful year for Biogen. Let me review some of our most important achievements. We announced the spinoff of our hemophilia business, now called Bioverativ, and aim to complete the transaction next week. We presented results from the SYNERGY study of opicinumab, a potential remyelinating therapy for MS. We presented updated a-beta (03

[Michael D. Ehlers, M.D., Ph.D.:]

Thank you, Michel, and on behalf of employees and stakeholders around the globe, let me congratulate and welcome you to your new role and share the excitement and enthusiasm for the vision, energy, rigor and commitment you are really bringing to the helm of this great company. And good morning to everyone on the call. 2016 was a productive year for Biogen as we made important progress advancing our understanding of several key diseases and assets, received approvals for a broad range of therapies, and continued to shape our pipeline toward areas of high unmet medical need. Let's begin with SPINRAZA. With FDA approval, SPINRAZA became the first and only treatment approved in the U.S. for spinal muscular atrophy, or SMA. We plan on submitting additional data this year to the FDA, including the final analyses from ENDEAR and CHERISH, the Phase 3 study evaluating SPINRAZA in later-onset SMA, with the goal of updating the label. Earlier this month, we also presented new data from the final analysis of ENDEAR at the British Paediatric Neurology Association conference in the U.K. SPINRAZA met the prespecified primary endpoint in the final analysis, demonstrating a statistically significant reduction of 47% in the risk of death or permanent ventilation. In this analysis, 68% of untreated infants died or required permanent ventilation compared to 39% of infants treated with SPINRAZA. Commonly reported adverse effects were generally consistent with those expected in the general population of infants with SMA. We plan to present further efficacy and safety results from ENDEAR in addition to CHERISH later this year. Specifically, we are submitting both ENDEAR and CHERISH to AAN for presentation in April. In addition to being the first medicine for the treatment of SMA, SPINRAZA represents the first intrathecal antisense oligonucleotide approved for any indication. The success and favorable benefit risk profile of SPINRAZA highlight the potential for this previously untapped therapeutic modality in severe nervous system diseases more broadly. Working together with our collaboration partner, Ionis, we intend to leverage our leadership position to advance new therapeutics. Moving on to our efforts in MS repair and regeneration, we are planning to initiate a Phase 2b study for opicinumab, or anti-LINGO, in the fourth quarter. We are also advancing BIIB061, a novel oral remyelinating agent with a different mechanism than opicinumab. We are applying learnings from the opicinumab trials to inform next steps for this asset and look forward to updating you in the coming months. Across our MS franchise, we remain committed to fully understanding and maximizing the medical value and impact of our products as we continue to generate new clinical data and prioritize life cycle management opportunities. Although not within MS, we believe the pursuit of natalizumab, or TYSABRI, for acute ischemic stroke is an example of how we aim to derive additional value. With over 1.7 million cases each year, stroke remains one of the leading causes of death and neurologic disability worldwide with limited treatment options. We believe natalizumab may be able to address the post-ischemic inflammation that leads to neurotoxicity. We previously reported that in our Phase 2 study ACTION, natalizumab, when administered up to nine hours after stroke onset, failed to meet its primary endpoint of MRI infarct volume, but did show benefit on key prespecified secondary clinical outcomes, including the modified Rankin Scale and Barthel Index. We expect the follow-on Phase 2b dose-ranging study ACTION 2 to be fully enrolled in 2017 and hope to show the results shortly thereafter. This study is assessing the clinical impact of natalizumab on functional independence and cognition when initially dosed within up to 24 hours of stroke onset, which would be a major advancement over the current standard of care, such as tissue plasminogen activator, or TPA, which has a limited time window. Now, turning to Alzheimer's disease, during the quarter, a number of exciting developments occurred for our lead assets. We presented new data from the Phase 1b PRIME study of aducanumab, our investigational treatment for early Alzheimer's disease, at the CTAD meeting in San Diego. We believe the totality of the data presented at CTAD, including additional data from our competitors, continue to support the a-beta hypothesis, as well as the design of our Phase 3 trials. Also in Alzheimer's disease, as Michel mentioned, our partner Eisai recently initiated began (14

[Paul J. Clancy:]

Thanks, Mike. Our GAAP diluted earnings per share were $2.99 in the fourth quarter and $16.93 for the full year. GAAP earnings per share were negatively impacted by $1.55 related to the settlement in license agreement with Forward Pharma. Our non-GAAP diluted earnings per share were $5.04 in the fourth quarter and $20.22 for the full year. Total revenue for Q4 grew 1% year-over-year to approximately $2.9 billion and grew 6% for the full year to $11.4 billion. Global fourth quarter TECFIDERA revenues were $1 billion. This included revenues of $800 million in the U.S., an increase of 2% versus Q4 last year, and $202 million outside the U.S., a decrease of 3% versus Q4 of last year. As a reminder, in Q3, we believe TECFIDERA U.S. revenue benefited by approximately $40 million to $50 million due to inventory build in the channel, which impacts the sequential quarter comparison. On a sequential basis, we believe inventory levels remained relatively constant. For the full year, worldwide TECFIDERA revenues were $4 billion, an increase of 9% versus prior year. This included $3.2 billion in the U.S. and $799 million in sales outside the U.S. Interferon revenues, including both AVONEX and PLEGRIDY, were $688 million during the fourth quarter, a decrease of 7% versus Q4 last year. This included $488 million in the U.S. and $200 million in sales outside the U.S. For the full year, worldwide interferon revenues were $2.8 billion, consisting of $2 billion in the U.S. and $815 million in sales outside the U.S. TYSABRI worldwide revenues were $474 million this quarter, a decrease of 1% versus Q4 last year. This included $289 million in the U.S. and $185 million outside the U.S. In the U.S., Q4 TYSABRI revenue was unfavorably impacted by an increase in discounts and allowances specific to this quarter. For the full year, worldwide TYSABRI revenues were $2 billion, a 4% increase versus the prior year. We recorded U.S. revenues of $1.2 billion and $781 million internationally. Foreign exchange and hedge impact weakened full-year revenue by approximately $66 million for TECFIDERA, $79 million for interferons, and $62 million for TYSABRI versus prior year. As a reminder, with respect to ZINBRYTA, in the United States, we don't book in market revenue, we book a profit share. And in Q4, we experienced a contra revenue to the total revenue line. Our Hemophilia products continued to perform well this quarter. ELOCTATE revenues for the quarter were $149 million, an increase of 47% versus Q4 last year. This includes $126 million in the U.S. and $23 million outside the U.S. For the full year, world-wide ELOCTATE revenues were $513 million. We recorded U.S. revenue of $445 million, and $68 million internationally. ALPROLIX revenues in Q4 were $93 million, an increase of 31%, versus Q4 last year, including $74 million in the U.S. and $20 million outside of the U.S. For the full year, worldwide ALPROLIX revenues were $334 million. We recorded U.S. revenue of $268 million and $66 million internationally. Our Biosimilar business generated $53 million in revenues this quarter, and full-year Biosimilar revenues were $101 million. Turning to our Anti-CD20 revenues, we recorded $318 million for Q4 and $1.3 billion for the full year. Total Other revenues were $51 million in Q4 and $316 million for the full year. Now turning to the expense line on the P&L. Q4 GAAP cost of goods sold was $378 million; non-GAAP cost of goods sold was $363 million; both 13% of revenue. Full-year GAAP COGS were 1.5 billion or 13% of revenue. And full year non-GAAP COGS were 1.4 billion or 12% of revenue. Q4 GAAP R&D expense was $534 million or 19% of revenue. Q4 non-GAAP R&D was $531 million or 18% of revenue. Both GAAP and non-GAAP R&D expense included a $50 million payment milestone to Eisai in Q4, following the dosing of the first patient in, in the Phase 3 program for the BACE inhibitor. Full year GAAP and non-GAAP R&D expense were $2 billion, both 17% of revenue. Q4 GAAP SG&A was $496 million; Q4 non-GAAP SG&A was $484 million; both 17% of revenue. Both full-year GAAP and non-GAAP SG&A were $1.9 billion or 17 % of revenue. Throughout the year, we continued to execute on a number of measures to curb operating expense growth, while continuing to invest in R&D in key commercial priorities. We believe the benefits materialized in both the fourth quarter and full year results. We booked a GAAP-only charge in Q4 of $455 million related to our recent settlement and license agreement with Forward Pharma. Upon effectiveness of this agreement, we've agreed to pay Forward Pharma $1.25 billion plus potential royalties. The charge in Q4 represents the portion of the payment attributable to the sales of TECFIDERA during the period April 2014 through December 31, 2016. GAAP other net expense, which includes interest was $48 million in Q4 and $217 million for the full year. Non-GAAP other net expense was $52 million in Q4 and $222 million for the full year. In Q4, our GAAP tax rate was approximately 23%, and our non-GAAP tax rate was approximately 24%. For the full year, both GAAP and non-GAAP tax rates were approximately 25%. Our weighted average diluted share count was approximately 217 million for Q4 and 219 million for the full year, which brings us to our diluted earnings per share. For Q4, we booked $2.99 on a GAAP basis and $5.04 on a non-GAAP basis. For the full year, GAAP EPS was $16.93, and non-GAAP EPS was $20.22, representing a strong 10% and 19% growth year-over-year, respectively. During the quarter, we repurchased 2.2 million shares of the company's common stock for a total value of $651 million. We ended the quarter with approximately $7.7 billion in cash and marketable securities, with approximately 30% of this in the U.S. In 2017, we expect to continue repurchasing shares as part of our previously announced $5 billion share repurchase program. Let me turn to our full year 2017 guidance. Guidance this year has a few more moving pieces due to the spin-off of Bioverativ

[Michel Vounatsos:]

Thank you, Paul. The following is my take on how Biogen is opening the page for 2017. We have a stable leadership position in MS, with the remaining lifecycle management opportunities, for which I'll come back to you at a later stage. Our Biosimilars business is growing strongly. We are now the standard of care for SMA, and we believe intrathecal delivery opens up potential limited treatment modalities. I am very encouraged by the progress in our Phase 2 and 3 programs, such as (31

[Operator:]

Your first question comes from the line of Mark Schoenebaum with Evercore ISI. Please go ahead.

[Mark J. Schoenebaum:]

Oh, hey, guys. How are you? First, thanks to the Biogen organization for all your support while I was out. You guys were just fantastic to my team and to me, especially to Paul, Al, and Matt. Second of all, I know you've been asked this before, but I just think it's so important that I'd love to hear you say it in front of the broadest audience possible. And that is just comment on the solanezumab results, and what implications they may or may not have for aducanumab. And then I'd like to know if Michel is a Patriots fan.

[Paul J. Clancy:]

Mark, look...

[Mark J. Schoenebaum:]

Because if he is, we're downgrading the stock.

[Paul J. Clancy:]

Al will take the sola. But just on behalf of everybody here at Biogen, it's great to hear your voice, great for you to be back, and well wishes.

[Mark J. Schoenebaum:]

Thanks, Paul.

[Alfred W. Sandrock:]

Hey, Mark, it's Al.

[Mark J. Schoenebaum:]

Hey, Al. Good to hear your voice.

[Alfred W. Sandrock:]

I agree with Paul. It's great to hear your voice again.

[Mark J. Schoenebaum:]

Thank you.

[Alfred W. Sandrock:]

So, on sola, there's a few key differences, right, between the sola trials and aducanumab. First of all, the patient population they studied was mild, with mild patients. We're studying the prodromal and the early mild. We continue to believe, and I think most of the community believes that the earlier the better, particularly for a-beta lowering therapies. The second is the outcome measure they used ADAS-Cog. And they actually looked at CDR sum of boxes as a secondary endpoint, I believe. And we believe CDR is a very good endpoint for early-stage Alzheimer's, and that's what we're using in our Phase 3 trial. I believe the Lilly results showed a P-value less than 0.05 on the CDR sum of boxes, even in the mild population. So, I thought that was encouraging. And finally, the difference in the antibody. Sola binds to soluble monomeric forms of a-beta, which means it binds to a lot of antigen in the circulation. The antibody probably, therefore, has a hard time getting to the brain. They actually couldn't show a lowering of amyloid plaque to a significant degree in the brain. Our antibody, in contrast, doesn't bind to the soluble monomeric form; it binds to the soluble oligomers. Binds also to the insoluble fibrillar forms. As a result, the antibody does get into the brain, and we have a substantial robust reduction in amyloid plaque in the brain at one year, which we published, dose-dependent. So, I think for all those reasons – I'm not sure you can read too much into the sola result and infer anything on what we're going to see with aducanumab.

[Michel Vounatsos:]

And concerning your second question, I will not enter into the debate on what real football is, but I'm a fan of all the teams around here, including the Celtics and the Patriots.

[Operator:]

And your next question comes from the line of Ronny Gal with Bernstein. Please go ahead.

[Aaron Gal, Ph.D.:]

Hi, good morning, and thank you for taking my questions. I got three quick ones. The first one, Abbey just moved their TAL program into Phase 2. We've been talking a lot about the strength and weaknesses of the amyloid beta hypothesis. I wonder if you would review for us how you think about the anti-TAL as a target. What has been proven about that target, and what has not? And what is generally your feeling about that overall field as a kind of secondary field in the Alzheimer's field? Second, quarterly seasonality, we've seen it in the first quarter with the multiple sclerosis drugs. As we think about your revenue for 2017, should we think about the first quarter as being a lot weaker and growing over time? And then last but not least, I'm not sure you're going to be willing to say that, but as you're accelerating the quarter (37

[Michael D. Ehlers, M.D., Ph.D.:]

Okay, Ronny. This is Mike Ehlers. I'll start with the TAL question. So, we're very interested in TAL, because as you may know, one of the hallmarks of TAL pathology is that the pathology in the brain is more related to clinical status and progression. That's been one of the reasons why there's been such an interest in TAL. There's also a potential notion that this might be a mechanism that could intervene a little bit later than a-beta. And those have been some reasons for a lot of the excitement. Other parts of this that get us interested is the data around the potential spreading of TAL extra-cellularly that leads to progression of the pathology. And I think that's led some additional credence to the notion that a monoclonal antibody might be able to intercept the core disease process. There's some open questions about the relevant TAL species and the best epitopes. And a lot of that will have to play out clinically. There's tremendous advance, and we're certainly active in this in imaging agents for TAL pathology. And we think that if that comes to fruition, that has the chance to be as important to the field as amyloid imaging. I would say that in our portfolio, we have both the TAL monoclonal antibody, and we're also progressing, soon to get to a clinic, an antisense oligonucleotide type of TAL and our collaboration with Ionis that I kind of referred to in the line of the potential for intrathecal antisense oligonucleotides. So, we think there's great potential. A lot of it will play out in the clinic, and we're generally excited about TAL as a target.

[Paul J. Clancy:]

Ronny, this is Paul. I'll try to address the seasonality question. Yeah, I think you're basically right that in multiple sclerosis, and in our expectations, we expect some normal seasonality headwinds in the United States. We generally anticipate seeing gross to net as a percentage move up just in Q1. That's pretty normal. U.S. patients are oftentimes moving around with respect to changes in insurance. And sometimes, there's a little bit of a unit slippage on that. And the TECFIDERA inventory levels in the U.S. that I had pointed out that got high in Q3 and stayed in Q3 could experience a little bit of a drawdown. That doesn't change anything with respect to the fundamentals going through the rest of the year or over the long term.

[Alfred W. Sandrock:]

Yeah, sure. You guys gave me the toughest question. This is Al, Ronny. We don't want to comment on interim analyses or futility analyses, or any of those kinds of things, so sorry.

[Operator:]

And your next question comes from the line of Eric Schmidt with Cowen & Co. Please go ahead.

[Eric Schmidt:]

Thanks for the question. With the spin, was the revenue of $5 million in the first week on the market, is that a real sort of end user number? And when Michel says expecting immediate EU approval, are we thinking next week? Thank you.

[Paul J. Clancy:]

Why don't Michel and I tag team this. This is Paul. The $5 million in Q4 was all channel build, Eric. So, as everybody knows, approved a couple of days before Christmas, 12/23. Our team worked real hard the week between Christmas and New Year's. Inclusive of that was just some small channel fill that wasn't related to anything, with respect to patients.

[Michel Vounatsos:]

And concerning the EU approval, it's probably my accent. It's mid-year that we expect to have SPINRAZA approval.

[Eric Schmidt:]

Thank you.

[Operator:]

Your next question comes from the line of Geoff Meacham with Barclays. Please go ahead.

[Geoff Meacham:]

Hey, guys. Thanks a lot for the question. And thanks to Paul for all the detailed guidance. And I'll say upfront, go, Falcons.

[Paul J. Clancy:]

Next question.

[Geoff Meacham:]

Exactly. Exactly.

[Paul J. Clancy:]

All right...

[Geoff Meacham:]

So question for Mike or Al...

[Paul J. Clancy:]

We'll talk to you after the call and put some money on it, Geoff.

[Geoff Meacham:]

Let's talk later on that, Paul.

[Paul J. Clancy:]

All right.

[Geoff Meacham:]

So, for Mike or Al, just again to focus on Alzheimer's. For aducanumab, for enrollment, looks like you guys are more than one-third ways enrolled. Is there anything that's changed relative to some of the initial challenges that you faced? And does that make you feel better when you think about the patient identification down the road? And then just a real quick one. Have you guys have had to make any changes when you look at the protocol for engage or emerge to account for the seizure that you saw from the prime study? Thanks.

[Alfred W. Sandrock:]

Hi, Geoff. This is Al. We have not made any changes in the protocol to account for the seizure. Look, I mean, enrollment, as Michel said, we exceeded our stretch actually goal for 2016. Things are improving, I think, in terms of two fronts. Since we require a positive PET scan, it's hard to get PET scans lined up for people in certain countries. And with time, we've been able to sort out a lot of the issues related to getting PET ligand to the centers, where they have the PET scans and getting patients scanned. And I think that is improving. And hopefully, that'll help with enrollment. And then the other thing is that our publication last year really kind of continued to build excitement around our molecule, because we showed all the data we had from the preclinical studies and much of the data from the prime studies. So, that plus the CTAD results. So, think both of those things, I think, are encouraging, although, we still have, as you pointed out, a ways to go.

[Operator:]

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

[Terence Flynn:]

Hi. Good morning. Thanks for taking the question. Just was wondering, on 2017 guidance, recognize you guys don't typically give product guidance, but just wondering at a high level, if you can give us your thoughts on the MS franchise, volume price, the impact of the TECFIDERA label update and OCREVUS as well? Thanks.

[Paul J. Clancy:]

I think, Michel, and I will try to tag team this, a bit. We don't give product guidance, Terrence. I think, what you didn't ask, and what we think is the biggest ambiguity is what I kind of pointed out in the prepared remarks, is SPINRAZA, obviously. I think the MS business is a stable business that we certainly, have thinking around OCREVUS is coming in. And we'll kind of take some share and probably hopefully expand the market, particularly around PPMS. The ambiguity there, obviously, is what the label looks like at the end of March. Michel, any other additional comments?

[Michel Vounatsos:]

Yeah. So, on MS, it's all about implementation and execution. And what we can see is that when we do that well, and we can always do better, then we are able to start improving. For example, in Germany, with the launch of ZINBRYTA, this is now four months that we can see the share grow up to two years of being stable. In France, improved implementation for TEC, all-time high during the last results, during the prior audited results. But it's not the case everywhere. In the U.S., we've been a bit penalized as a market leader, with the contraction of the market in 2016. We believe this will normalize with the launch of OCRE, the way Paul said. This will expand the market, and the market will return to low single-digit growth. And the market leader will also benefit from that. So, it's (46

[Operator:]

And your next question comes from the line of Michael Yee with RBC Capital Markets. Please go ahead.

[Michael Yee:]

Thanks. And appreciate all of the guidance clarity, as well. Wanted to ask a little more on SPINRAZA. You made some comments about managed care and things like that and some headwinds with the launch to get ramped. But I wanted to just ask, how many sites are available? How are you ramping this? How fast you think that could by the end of the year? And are people trying to write for Type 2 patients? And how is managed care handling all of that? Thanks so much.

[Paul J. Clancy:]

Gosh, Michael, I mean, we don't have many more calls to be able to say, it's early days, but it's still pretty early days. As we've pointed out, it's 40 or 50 sites that is a big percentage of the business in the United States, and then it broadens out from there. We are doing meaningful medical education across United States. We have a go-to-market, if you will, that includes going and providing care to the families and understanding. But I would say, we're early days in trying to get through these capacity constraints and early days with respect to reimbursement in all the insurer coverage. I know it's a very important thing, and what we'll try to do is in Reg FD settings, update people along the way, as we move through the launch.

[Michel Vounatsos:]

So, what we can see is that it's a state-by-state opportunity, and this varies, obviously . This week we had the approval from a very large Medicaid coverage, but I will not say more at this stage on this one, because you saw also the Anthem decision. So, we believe that over time, logic will prevail in terms of having the patient access in therapy that is proven to save lives. And the demand from the patient side is there and is strong. This I can tell you. Concerning the early access program that we have open, in the U.S., we had 62 patients in 15 sites and ex U.S. we have 146 patients in 13 countries. So, all of those factors are coming into play. And so far, we are satisfied with the progress that we are making.

[Operator:]

Your next question comes from the line of Matthew Harrison with Morgan Stanley. Please go ahead.

[Matthew K. Harrison:]

Great. Good morning, everybody Thanks for taking the question. I'm going to ask one, and I'm not sure if you'll answer, but I'll ask anyway. I think one of the major questions people still have after the TECFIDERA settlement is a scenario where you guys win the interference but lose the IPR. And I think a lot of people are wondering what that outcome could look like vis-a-vis the settlement with Forward, and if there really is any extended protection in that scenario. And why you might structure the settlement with Forward to allow that as a potential outcome? So, any confidence you can give us that, that sort of downside scenario can't happen?

[Paul J. Clancy:]

Okay, Matt. This is Paul. We're going to have a hard time really engaging on this, obviously. So, I can't really get into specifics, because it does get into kind of legal strategy and all of that type of stuff. The way to think about the announcement that we made a couple of weeks ago on Forward Pharma, I think, is probably twofold. One is which, obviously, you're getting at. But one is the economics, which we laid out. And that was all about trying to reduce uncertainty in what we thought was a very prudent deployment and a good structuring of the economics. The second was kind of the structure and kind of keeping the interference going, and so on and so forth. And that was designed to attempt to ensure certainly, and that's what we believe, that we have the strongest patents over the long term across various scenarios, both in the U.S. and in the EU. So, there's lots of different scenarios. People have written about it. But that's probably about as far as I can. Thanks for the question.

[Operator:]

Your next question comes from Josh Schimmer with Piper Jaffray. Please go ahead.

[Joshua E. Schimmer:]

Thanks for taking my question. I just want to come back to SPINRAZA. I guess I'm a little confused by some of the comments that you're obviously excited and well-resourced. You even expect upwards COGS pressure from the SPINRAZA royalty, but also projecting slow and gradual due to access reimbursement. I guess, given the evidence that suggests high misfunction in SMA, I'm surprised there'd be any tolerance for delayed uptake, either for logistics or reimbursement in this population. Maybe you can discuss whether awareness and urgency to treat this disease is really where it should be? And if not, why not? Thanks.

[Paul J. Clancy:]

Yeah, I mean, I think that, Josh, what you laid out is what we'd agree is this is the ambiguity of the uptake. And we're only weeks in. The awareness of SPINRAZA, I think, is absolutely there, tight knit community, extremely tight-knit set of physicians as well. As people know, when we talked about and provided top line data on the second interim readout, we alluded to that there was a chance we'd get approval in the fourth quarter or early 2017. Even though we conveyed that, that actually was not the general belief in the physician community. I think people were thinking more like spring. So, we went to work, trying to get that ready. But there's still a little bit of work around capacity constraints. And then what you point out is obviously the other big countervailing force, right? This is tremendous unmet need to patients that have a dire outcome. And I think we talk about that in Type 1, but I would say, that Type 2 is similar for any family that's burdened with this disease.

[Michel Vounatsos:]

So, a gradual uptake throughout the year is that we should envision realistically, and this is of course (54

[Operator:]

Your next question comes from the line of Ian Somaiya with Bank of Montreal. Please go ahead.

[Paul J. Clancy:]

He's probably an Atlanta Falcons fan.

[Matthew Calistri:]

You might be on mute. If you're asking a question right now, we cannot hear you.

[M. Ian Somaiya:]

Yep, you're right. I was on mute. And no, my Giants lost early, so. (55

[Paul J. Clancy:]

Well, let me start, and Mike, I'm sure, will have other things to add. The probio drug approach is to go after plaque, essentially. The pyroglutamated form is thought to be (55

[Michael D. Ehlers, M.D., Ph.D.:]

Well, I guess, the only thing I would say specifically on this is, as Al mentioned, the pyroglu a-beta antibody is largely a similar core hypothesis, going after plaque beta amyloid. There may be some differences in specific epitopes that would have to play out. It's also kind of less clear how that intervention causes biomarker changes typical of other a-beta antibodies. That's another thing that would have to play out. I think that things with gene therapy as a general approach was the other question you asked about. We're very interested in gene therapy. AAV is a modality, in general. I think there's a lot of excitement around that. We have very active programs in our collaboration with UPenn. There's still a lot of things that have to be worked out in terms of the technology, the safety profile, the manufacturing and bioprocesses. My own feeling is that this will initially be most beneficial in more severe genetic diseases, rather than genetically heterogeneous common diseases. That's the way that we're thinking about it, but we like AAVs as a general approach.

[Operator:]

Your next question comes from the line of Robyn Karnauskas with Citigroup. Please go ahead.

[Robyn Karnauskas:]

Hi, guys. Thank you. And I appreciate the comments that you've made on this market so far, but I had one more. So, if you look at IMS, it appears that TECFIDERA's declining, and I think AUBAGIO is growing. So, maybe you could help us understand what you're seeing on this trend, and what you might be doing to control the trend? And if there's any pricing pressure or anything like that on the orals from this on TECFIDERA in the U.S. and the EU? Thanks.

[Michel Vounatsos:]

So, I will not comment on the third-party's data. Let's have them answer. (58

[Matthew Calistri:]

Yeah, we're going to take one more question.

[Operator:]

And your final questions comes from Alethia Young with Credit Suisse. Please go ahead. Alethia Young - Credit Suisse Securities (USA) LLC Hey, guys. Thanks for taking my question. I guess, I was curious if you could provide maybe some potential color around like when you think about some of the prevalences in some of the other markets for SMA, like Japan, Canada, or Australia, which could be on the horizon in the next 12 to 24 months? Thanks.

[Paul J. Clancy:]

Well, I know of no regional differences in the incidents of SMA or the prevalence. We actually have filed for approval in Australia, Canada, and Japan, as well as Europe. And so, yeah, I mean, we would love to ultimately – I think every child with SMA deserves treatment. And so, that would be our goal.

[Michel Vounatsos:]

So, we want to provide the product for the patient in need all around the globe. And in Asia-Pac, there are plenty of opportunities. I'll be with Al and all the members of the team flying at the end of the week to Japan to meet authorities to discuss also SMA, so we are committed. We are meeting with authorities, and we are working on that.

[Michel Vounatsos:]

Thank you, all. Thank you for attending our call. And talk to you very soon.

[Operator:]

Thank you, everyone. This will conclude today's conference call. You may now disconnect.