Biogen Inc.
Q1 2013 Earnings Call Transcript

Published: 25 Apr 2013

[Operator:]

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

[Claudine Prowse:]

Thank you, and welcome to Biogen Idec's First Quarter 2013 Earnings Conference Call. Before we begin, I encourage everyone to go to the investors section of biogenidec.com to find the press release and related financial tables, including a reconciliation of the non-GAAP financial measures that we'll discuss today. Our GAAP financials are provided in Tables 1 and 2. Table 3 includes a reconciliation of our GAAP to non-GAAP results which we believe better represents the ongoing economics of our business and reflects how we manage the business internally. We have also posted slides on our website that follow the discussions related to this call. I would like to point out that we will be making forward-looking statements which are based on our current expectations. These statements are subject to certain risks and uncertainties, and actual results may differ materially from our expectations. I encourage everyone to consult our SEC filings for additional detail. On today's call, I'm joined by our Chief Executive Officer, Dr. George Scangos; Tony Kingsley, EVP of Global Commercial Operations; Dr. Doug Williams, EVP of Research and Development; and our EVP of Finance and CFO, Paul Clancy. I'll now turn the call over to George.

[George A. Scangos:]

Okay, thanks, Claudine. And thanks to all of you for joining us today. Before I start, I do want to make a few comments on the case reports that appeared in the New England Journal of Medicine today. Frankly, it's hard for me to understand why these old reports were deemed worthy of publication at all. And certainly the timing, coming shortly after approval, is interesting. These are old news, right? The cases described in the New England Journal are 2 of the 4 cases of PML that have occurred in over 19 years and over 180,000 patient years of exposure to FUMADERM. All 4 cases were discussed at the JPMorgan conference in January, and all 4 cases were seen by the FDA, European regulatory authorities and all regulatory authorities months in advance of approval. And I think the TECFIDERA label speaks for itself. So just to reiterate, there have been no cases of PML or other opportunistic infections with TECFIDERA. The clinical program has involved over 2,600 patients treated for up to 4 years and with a median time of approximately 2 years. So there's been substantial patient exposure with TECFIDERA. The New England Journal of Medicine cases occurred with different drugs; but even if one does assume their optimum rates are the same, which I do not believe to be true, then the rate is extraordinarily low

[Tony Kingsley:]

Thank you, George. We were pleased with the continued execution of our commercial strategy in Q1. We remained focused on growing our leadership in the MS market, with a goal of maximizing our total patient share across our therapies. The launch in the U.S. of TECFIDERA represents, obviously, a very exciting addition to our MS franchise. During the quarter, we experienced continued strength across our products, with AVONEX and TYSABRI showing -- both showing solid revenue growth. AVONEX unit and revenue growth were strong as this important product remains a leading first-line therapy for MS patients. First quarter global AVONEX revenues increased 13% versus prior year, and we continue to see competitive share gains for AVONEX within the ABCRE segment across multiple markets. The AVONEX performance continues to be driven by strong commercial execution; maintaining strong share of voice in this highly competitive and promotionally sensitive segment of the market; as well as the benefits of the AVONEX PEN which offers improved patient convenience, which we believe is an increasingly important differentiator within the injectable segment. TYSABRI first quarter global revenues increased 9% versus the prior year. In an increasingly crowded MS market with more options available to patients, we believe TYSABRI's powerful efficacy profile continues to resonate with neurologists. We are continuing to educate the market about TYSABRI risk stratification and believe this is supporting earlier use of TYSABRI in appropriate patients who need high efficacy. The majority of patients starting TYSABRI are JCV antibody negative, and we expect favorable longer-term retention rates for these patients. Moving on to TECFIDERA. We're still in the initial days of the U.S. launch and it's premature for us at this point to comment on specific launch metrics. However, we have been encouraged by the early signs of physician and patient interest in this product. For TECFIDERA, we are focused on 2 immediate objectives

[Douglas Edward Williams:]

Thanks, Tony, and good morning, everyone. The first quarter has been busy, with progress on the clinical and regulatory front and further progress building out our research capabilities. Starting with important advances on the regulatory front. We received notification of a positive opinion from CHMP for approval of TECFIDERA, and both FDA and Health Canada approved TECFIDERA with first-line indications for broad spectrum of patients with relapsing forms of MS. As expected, the U.S. TECFIDERA label reflected the strong efficacy, favorable safety profile and limited monitoring requirements for a broad population of patients with relapsing forms of MS. Beyond the initial CBC, which should be taken within 6 months prior to starting therapy, and blood tests annually or as clinically indicated, there's no additional required monitoring for patients. Our warnings and precautions section have 2 items of note

[Paul J. Clancy:]

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

[George A. Scangos:]

Okay. Thanks, Paul. So in summary, our core business is doing remarkably well. The TECFIDERA launch is well underway in the U.S. And now with 3 approved MS products in the U.S., TECFIDERA, TYSABRI and AVONEX, we believe we have the portfolio that makes us the global leader in the treatment of MS. What's important to us is to drive leadership across the entire franchise. We believe that, with the leading injectable, the leading high efficacy therapy and potentially the leading oral drug, we're well positioned to do just that. So I believe that, with the accomplishments that we've made since the beginning of the year, we're on a very promising trajectory for the remainder of this year and for years to come. We have 3 more potential new products coming forward in the next 18 months

[Operator:]

[Operator Instructions] Your first question comes from the line of Geoffrey Porges from Bernstein.

[Geoffrey C. Porges:]

Probably, the best question would just be to start off with a little more color on TECFIDERA. I know you don't have any sort of firm metrics, but could you give us a sense of whether the patients that are starting are coming new to treatment or whether they're prior treatment failures, whether they're switches or have been off treatment previously. And then perhaps a little color on what their best alternative treatment was

[Tony Kingsley:]

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

[Operator:]

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

[Mark J. Schoenebaum:]

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

[George A. Scangos:]

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

[Operator:]

Your next question comes from the line of Ravi Mehrotra from Crédit Suisse.

[Ravi Mehrotra:]

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

[Douglas Edward Williams:]

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

[Tony Kingsley:]

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

[Ravi Mehrotra:]

Understood. George, do you think the guest has left the party yet?

[George A. Scangos:]

Apparently not.

[Operator:]

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

[Robyn Karnauskas:]

So quickly, maybe you can give us an update on when do you think the Italian TYSABRI dispute might be resolved. And just clarify

[Paul J. Clancy:]

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

[Operator:]

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

[Matthew Roden:]

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

[George A. Scangos:]

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

[Operator:]

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

[Eric Schmidt:]

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

[Tony Kingsley:]

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

[Paul J. Clancy:]

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

[Operator:]

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

[Michael J. Yee:]

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

[Tony Kingsley:]

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

[Michael J. Yee:]

Is it all through the same distribution channels, generally?

[Tony Kingsley:]

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

[Paul J. Clancy:]

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

[Operator:]

Your next question comes from Geoff Meacham from JPMorgan.

[Geoffrey C. Meacham:]

I've got a couple on TECFIDERA. So I know it's early, but are CBC counts being monitored more closely versus, say, TYSABRI or AVONEX or any other oral? In terms of the baseline, is there sort of a threshold that physicians are settling in at for TECFIDERA? Or is this not even part of the conversation? And I have one follow-up on reimbursement.

[Douglas Edward Williams:]

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

[Operator:]

Your next question comes from Thomas Wei from Jefferies.

[Thomas Wei:]

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

[Paul J. Clancy:]

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

[Tony Kingsley:]

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

[Operator:]

Your next question comes from Brian Abrahams from Wells Fargo.

[Matthew J. Andrews:]

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

[Douglas Edward Williams:]

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

[Operator:]

Your next question comes from Terence Flynn from Goldman Sachs.

[Terence C. Flynn:]

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

[Paul J. Clancy:]

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

[Operator:]

Your next question comes from Marshall Urist from Morgan Stanley.

[Marshall Urist:]

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

[Tony Kingsley:]

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

[Operator:]

Your next question comes from John Sonnier from William Blair.

[John S. Sonnier:]

Just a quick one on PLEGRIDY. I think a question that patients and treaters are going to want to know is, how this drug looks relative to the shorter acting? And it does beg the question, do you guys have plans to run a non-inferiority study against either Rebif or AVONEX?

[Douglas Edward Williams:]

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

[Operator:]

Your next question comes from the line of Joel Sendek from Stifel.

[Joel D. Sendek:]

I have a question on SMNrx and then on FAMPYRA as well. So first of all, on SMNrx, I'm wondering if you can give us some sense as to the timeline for this and whether you -- and how aggressive you'll be in going after Type 2, 3 patients, which I think is the larger patient group. And on FAMPYRA, just quickly, what price did you -- were you able to negotiate in Germany?

[Douglas Edward Williams:]

Do you want to take the FAMPYRA one?

[Paul J. Clancy:]

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

[Douglas Edward Williams:]

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

[Operator:]

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

[George A. Scangos:]

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

[Operator:]

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