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Biogen IDEC Inc (NASDAQ:BIIB)

February 25, 2013 1:30 pm ET

Executives

Tony Kingsley - Executive Vice President of Global Commercial Operations

Paul J. Clancy - Chief Financial Officer and Executive Vice President of Finance

Claudine Prowse

Analysts

Yaron Werber - Citigroup Inc, Research Division

Yaron Werber - Citigroup Inc, Research Division

Okay, well, good afternoon, everybody, and thanks once again for joining us here at the Citi Global Healthcare Conference. It's a great pleasure to have Biogen Idec here with us for the fireside chat. To my left is Tony Kingsley, who is Head of Commercial Operations. To his left is Paul Clancy, who is the Chief Financial Officer; and David [indiscernible], who's the Head of Investor Relations. So thanks so much for coming. We appreciate it. So lots to talk about. We want to talk about both in the commercial operations side, your preparations for Tecfidera, how you think about your overall portfolio and kind of what to expect from Tecfidera to the extent that you can answer all of our million questions about are you going to get a black box or a pink box or a red box or what the label's going to look like. And we have a lot of questions on that and then lot of financial questions too. So maybe let's start first if you don't mind because that's something that's, I think, it is a still topical right now. Can you -- and just bear with us, but are you expecting approval by the PDUFA date or is there any chance for a delay?

Unknown Executive

I think, maybe, unfortunately, no, I know it's on anybody's mind. But there's really no update on kind of regulatory status or regulatory approval. So we're still planning for PDUFA in the United States for late March, for first half of this year in the EU, and we're doing all of our preparedness along the way. So I mean, there's really nothing to report today and no change as it relates to kind of the regulatory approval status.

Yaron Werber - Citigroup Inc, Research Division

So on the earnings call, you guys did provide some language about -- that I think was perceived to be very positive. First of all, you're so public about acknowledging some of the concerns that were raised relating to what was on the website relating to kidney and potential timing of approval and why there hasn't been a panel. And I don't know, to the extent that you can, help us understand maybe, first, the fact that there hasn't been a panel. How do we look at that?

Unknown Executive

Well, I think it's positive, right? So to date, there's been no panel. I mean, we are not planning for one. You just never know with the FDA. So but no concerns that we have as it stands from a regulatory approval status. But really nothing to update.

Yaron Werber - Citigroup Inc, Research Division

And in terms of when you think of the totality of the clinical data and Tecfidera between confirm define and the follow-on studies, the open-label extension, and as you think about -- based on that data, what kind of labeling one would need to have and what kind of typical monitoring one needs to have? What's your sense as to what the data informs you?

Unknown Executive

Hard to tell. I mean, we're kind of in the late stages of regulatory approval. So really would be hard to guess at this point in time. Hopefully, we'll see it in not too distant future.

Yaron Werber - Citigroup Inc, Research Division

And I don't know if you can comment but from an SG&A perspective, so the data -- maybe I'll just rehash the data. The data, they see some white blood cell decreases but there's really nothing in the infection signal that we can recall. Does that typically suggest that one should follow the white counts or is it typically more based on the clinical outcomes with respect to if there was an infection, there's a reason to follow, but if there's no infection then there's really no need to follow?

Unknown Executive

Yes, so I mean nothing to report today unfortunately. So we're just going to have to see.

Yaron Werber - Citigroup Inc, Research Division

Okay, fair enough. The -- maybe I'll just switch topics to the AAN abstracts are out. The data does talk about the open-label extension, will confirm and define and I think they are lumped together. And there is a mention in there of about 6 cases of new cancer altogether. Is that -- I just wanted to see, is that -- do you recall, is that from the beginning of the study until now or does that just include the open-label extension?

Unknown Executive

I don't think there's anything new there. I mean, so -- I mean, nothing to report in terms of anything new on that one.

Yaron Werber - Citigroup Inc, Research Division

Okay, so all that data essentially has already been presented.

Unknown Executive

Yes.

Yaron Werber - Citigroup Inc, Research Division

So all those 6 cases have already been reported, there's nothing new.

Unknown Executive

I believe so.

Yaron Werber - Citigroup Inc, Research Division

Okay, good to clear that up. Tony, let's talk about we did an MS panel earlier today. So you're going to have a lot of work ahead of you. You have 3 drugs to detail and 3 sales forces to run, and I constantly go back and ask you that every time. Help us understand how do you manage every sales force and ultimately what's the marketing message is going to be. Do you present to the clients, to the physician clients some kind of a unified message from Biogen.

Tony Kingsley

So let me take that from a couple of different angles. So the sales force model, we think each of the 3 products requires an equal amount of promotion for different reasons at this point in its life cycle. Obviously, Tecfidera as a launch product needs significant promotion. We think AVONEX is a great injectable product, such as [indiscernible]. And that segment of market is very share sensitive, needs to be promotional. We think TYSABRI can -- meaningful growth potential. So we will have in the vast majority of cases 3 reps going to offices. We think in the vast majority of cases, we can get that access. There are some places where that's constrained and we'll have to find a way to work around that. If you can get that access, more sale calls and more share voices, et cetera. From a positioning standpoint, look, it's a complex disease with lots of different patient schemes. We've said that many times. We believe that. We think that the 3 products broadly play to some different sets of patient needs. AVONEX is a great product for patients to start on, particularly patients with relatively mild disease. TYSABRI, we talk a lot about risk stratification, but what's important about TYSABRI is efficacy, right? It's really in sort of a class by itself for patients who have breakthrough disease that really needs efficacy and it looks like, again, we don't have the label, but you see in the data. The profile for Tecfidera is very positive, good efficacy and what looks like a reasonable, very reasonable safety profile. So there are some things that we'll have to do on the margin. Those products will compete for some of the same patients that we will obviously think very tactically about co-positioning. Each of our reps will be trained on the other products and able to speak about them knowledgeably. Each of our reps will be primarily motivated by incentive on a single product, right? That's sort of the key to this. But we'll remind you, we have about 30% of the patients today. That means we don't have about 70% of the patients, and the focus on all 3 of those products is outward looking and how do we capture more that patient share across that transaction.

Yaron Werber - Citigroup Inc, Research Division

The AVONEX PEN, how has that changed the dynamics in AVONEX? Where have you seen share gains? Is it in the new segment, in the new patient segment? Did you also see you're getting a proportional number of the switchers?

Tony Kingsley

Yes. So mostly through an increase in new starts. AVONEX is typically less than the other products, a product that is switched to historically. Look, our theory on the injectables is pretty straightforward. As a set of competitors, we've spent 10 years arguing with each other over what are relatively moderate differences in efficacy. The perceptions of efficacy across the platform therapies are getting further compressed as new products come in. So convenience becomes a big differentiator. The AVONEX is a once a week, with the PEN, which was in a smaller needle, put in on par with the other products, becomes a much more attractive option, we think. So it's that and sort of share our voice and execution that have driven that. We do see some places where there are switch-to business from people who have tolerability issues or injection-site reactions and other things that's done in a more frequently dosed products that makes patent, but the bigger -- the emphasis on that is to capture disproportionate share of this drug, and we think we've been successful to date in doing that.

Yaron Werber - Citigroup Inc, Research Division

Hence becoming at the expense of, what, is it equally among all the other ones or is it just proportionally more than Rebif to a certain degree as opposed to Avonex?

Tony Kingsley

It fluctuates. I think it's come from all of the products. I think it fluctuates a little bit but -- whether it's the high dose or Copaxone.

Yaron Werber - Citigroup Inc, Research Division

Okay, on the panel earlier today and we heard from the docs that they view PEG-Avonex as really being a replacement for AVONEX as opposed to a legitimate competitor with Copaxone and maybe Rebif. So from certain degree, I think they're still -- whether appropriately so or not, there still -- and you still hear a lot or quite often that physicians do view AVONEX as being the least potent of the ABCRs, right? So I guess question number one to you, do you agree with that based on the data? And then two, what's the strategy behind PEG-Avonex? Is it just going to be a replacement strategy or can you really capture share?

Tony Kingsley

Yes, good question. So PEGylated interferon is not actually -- actually, it's a different molecule. So I understand that perspective coming from the panel, but I think that -- thinks about it the wrong way. With the injectable category, we think it's going to exist for an extended period of time. It'll shrink, right? As I said, convenience becomes the bigger differentiator in that category. So that is what the strategy for PEGylated interferon is. The way to think about it is not -- as simply a replacement for AVONEX. But if you have an injectable category and you have a product that you could dose with the same efficacy as the other products and you can dose it once every 2 weeks or once every 4 weeks, why would you use any other injectable? So we think it is within the injectable category. It's a potential winner in the injectable category relative to the other players. It is true that AVONEX does have the perception of being, as you said, the least potent. That varies by geography. It varies a little bit, obviously, by a physician segment, but that's generally true. The PEGylated interferon data will stand on its own, right? And if you look at what the Phase III read-up was, it's squarely in the category of the other injectables. So it's a new molecule.

Yaron Werber - Citigroup Inc, Research Division

Would you consider doing a head to head maybe against Copaxone or some of the other drugs? An inferiority study with Q2 weeks and Q4 weeks?

Tony Kingsley

Could consider it. I mean, the question is what is it going to take to capture share in that segment. And with the first thing being a, what, disproportionate share of the new starts, it should be well positioned to do that. And then secondly, does it give you an increased opportunity to get some of the switchers? I'm not sure that would be necessary to have to do that.

Yaron Werber - Citigroup Inc, Research Division

No, the question is, do you want a target from the start or you're just going to leave that to Tecfidera? And then a question of switching too and then you can argue that you're -- that's the most convenient.

Tony Kingsley

Yes.

Yaron Werber - Citigroup Inc, Research Division

So why not switch to that upon -- it's sort of a self-defeating question whether you really need to do that study or not. And if you have the data, you can check off that question of potency once and for all.

Tony Kingsley

Yes. No, that's a fair point, but I think, again, the primary objective in interferon franchise if you take what PEGylated interferon would do over time is to compete for the new starts, because that's where most of the injectables are going to go. I think the secondary benefit in there is more opportunity with PEGylated is to get switches. There are lots of alternatives for switches, right? There's going to be Tecfidera, there will be other products in place as well. So that's a good strategy. If you can take a disproportionate share of new starts if you can gain share in the category as it shrinks, it's economically very attractive, we think.

Yaron Werber - Citigroup Inc, Research Division

As you think of this market, this market's got 3 segments, right, the new starts, which were about 3% of the business roughly annually, 2% to 3% market growth quite organic in MS.

Tony Kingsley

It's a little more than that. I mean, what we've seen over the last number of years is kind of a little bit different outside the United States and inside the United States. Inside the -- you can almost kind of equate that outside of United States is about 5 years behind in terms of penetration pattern. So outside the United States we see in the mid to high-single digit growth over the last few years. Inside the United States, we're seeing a low-single digit growth. It would appear a couple of years ago with Gilenya coming into United States, and it did create a little bit of tailwind for the category, and then it all totally made sense, right, is that innovation kind of can create growth. And we think that that's actually is quite possible to happen again with Tecfidera.

Yaron Werber - Citigroup Inc, Research Division

So the second bucket is the switchers. And what percentage of patients on ABCR switch among drugs every year?

Tony Kingsley

So it's a minority of that group. If you think about what the reasons for switching are, the most common reason is efficacy. People have a breakthrough, and then the secondary reason is tolerability issues. So there are patients who stay on injectable therapy. There are people who have been on AVONEX for 15 years or well, control people may have stay on Copaxone for 10 years. It really often has to be triggered by a breakthrough. The nature of this disease, though oversimplified, is relapse. It might come every 18 or 24 months, right? So that's a reasonably slow cycle that generates the primary reason for switching. We do see what new products come in to the extent physicians and patients are aware you get a stimulation and that switch will -- we would expect to see some of that with the entry of Tecfidera as we have with other products as well.

Yaron Werber - Citigroup Inc, Research Division

We hear from docs a lot, I mean, I think I've been hearing that consistently for years that the switching business is about -- they switch about between 10% and 20% of patients annually among ABCRs. Does that jive at all with what you're seeing or...

Tony Kingsley

Yes, I think that's fair.

Yaron Werber - Citigroup Inc, Research Division

And then what about -- the third segment is the returning quitters. Novartis has talked about -- but we got be honest. In all the doc checks we've done -- that's the one element -- I think, there's a huge disconnect between Novartis' comment and what we're really hearing from physicians as to how many patients are really coming back that are totally untreated? What are your thoughts because I'm trying to -- while I'm going with this, I'm trying to -- let's kind of put this together and see what Tecfidera is looking at.

Tony Kingsley

Yes. So we think there is some opportunity there. There's, we think, north of 100,000 patients across the U.S. and Europe that would fall into that category of the sideline. There's long-term noncompliant quitters. The fact that most of those patients aren't looking for therapy, they're not in places where they're looking for therapy, they're not accessing a information about therapy and there's a reasonably complex reason that people have gone, quit. This is relapsing-remitting disease. So it's possible that patients can do well or think they're doing well for an extended period of time. So we think there was some of that. We tried to triangulate on the numbers that Novartis talked about. I think what they talked about was something like half of their business in the first -- in 12 months or 9 months or something. Coming from what sounds like a combination of new start and returning quitters. So it wasn't half just returning quitters. I don't know what the mix within those is, but again, lots of those patients aren't actually looking for therapy. So I think it's a pretty sticky group.

Yaron Werber - Citigroup Inc, Research Division

Yes, and then if you look at Aubagio, the launch so far -- the trajectory of the launch in the TRX has been pretty uniform at least when we looked last, maybe 1 week or 2 ago, almost very similar to what we saw in Gilenya. The Gilenya initially was pretty slow and then kind of picked up steam. But what's surprising about Aubagio so far has been identical. Has that surprised you?

Tony Kingsley

I think it's within our expectation where they would go. It does speak to there's demand for oral therapy and the convenience associated with that. There's also a demand for other mechanisms of action, right? And I think you're seeing some of that. So it's a product that I think has interferon-like efficacy with a little bit of convenience advantage. Our research suggests that there's a niche for that, and that's what we're seeing it capture. The real question becomes where does it go after what we think is a better alternative that's available on the market.

Yaron Werber - Citigroup Inc, Research Division

Okay. So if we kind of -- if we put it together, you're looking at maybe 3% in the U.S. new patients, about 10,000 a year. If we do kind of 12% switchers on 360,000, that's another 50,000. So we're talking about kind of 50,000 or 60,000 patients is the way we should think about is the initial opportunity kind of annually?

Tony Kingsley

Yes, so the 50,000 is probably a little high because I think the 360,000 is little high. If you actually look at patients that were on treatment...

Yaron Werber - Citigroup Inc, Research Division

What number are you using?

Tony Kingsley

South of 300,000, I think, would be our number. But the total that -- that kind of rough proportion of the switchable in a stable market is -- it's pretty similar to what we think. And that question becomes does that switch rate accelerate a little bit with new -- so I think you're somewhere in the ballpark.

Yaron Werber - Citigroup Inc, Research Division

And what kind of numbers do you have in Europe for patients on therapy?

Tony Kingsley

A little bit bigger than the U.S., similar set, a little bit bigger in that I think in the U.S. What we've said what...

Unknown Executive

So there's a little bit south of -- we think there's a little bit south of 700,000 patients on therapies across the world. It's kind of moved to about 40% U.S. and the balance outside the United States.

Tony Kingsley

Yes.

Yaron Werber - Citigroup Inc, Research Division

And most of that balance is Europe for you guys.

Tony Kingsley

Yes. I mean, in other parts of the world, it's become accretive business for us, but it's largely a North Atlantic disease. And it's over the years, it's followed the immigration pattern of Northern Europeans really. So you have a presence in Australia, you have presence at other places in the world, but certainly -- and as a result, the United States as well.

Yaron Werber - Citigroup Inc, Research Division

Okay. Can we -- I want to just kind of move next to -- how do we think about kind of gross-to-net discounts in U.S. versus o U.S. for MS, because It's competitive market? Obviously, when we look at some of the legacy products like TYSABRI and AVONEX we can kind of back into that better. Of course, if they're on the market for a while, they've experienced that price increase issue, which lowers the price. But for drugs, what do you think is kind of a reasonable gross-to-net adjustment in the U.S.?

Unknown Executive

I mean, inside the United States for the therapies that have been around for a while, we were kind of in this 20s to high 20s percentage gross to net. Outside the United States, there isn't meaningful gross to net, right? I mean, we basically don't --and there is a little bit in terms of rebates or VATs and stuff like that. But it's pretty closely, outside the United States, mirrors the list prices.

Yaron Werber - Citigroup Inc, Research Division

Right. You have discounts over the year, over time that we should think about?

Unknown Executive

Yes, not meaningful.

Yaron Werber - Citigroup Inc, Research Division

Germany is probably on the high end, right? They're mandating about a 16% discount right now.

Unknown Executive

That's coming out of the act that they had in 2010. Yes.

Yaron Werber - Citigroup Inc, Research Division

Okay, by the way, if there's any questions in the audience, raise your hand at any time. Let me maybe just think about -- we've seen some issues recently with Gilenya and some of the copay assistance cards. We had to kind of pick up a little bit, managed care getting pretty conservative about that. How do you guys think about that, and how meaningful is it in MS?

Tony Kingsley

So copay assistance is important, right? There are high price -- these are high-priced therapies. All of the companies offer -- there's different flavors -- what we think pretty comparable kinds of the copay assistance to patients. We have seen a couple of isolated cases where payers, private payors, have like -- they outlawed -- moved away copay assistance. They -- in the cases where they've done that, at least that I'm familiar with, they've gotten a pretty big backlash from patients and employers. So stay tuned on that. But it's pretty important because the coinsurance or copays for the products can be meaningful for patients. These companies all offer programs. I believe we have done that.

Yaron Werber - Citigroup Inc, Research Division

And what's the mix? What's the mix of the private market in MS?

Tony Kingsley

So we -- it's 80% -- north of 80%, in the 80s would be typical for our products that are private payor versus government. This is the various mix of government plans.

Yaron Werber - Citigroup Inc, Research Division

Okay. And Paul, just to ask you, the Italian distributor issue, when -- number one is -- was -- resolution of that, was that included in the guidance? And then number two, what needs to happen before that gets resolved? And then how do you book those revenues? Or those deferrals?

Paul J. Clancy

Yes, yes. I mean, not actually an easy question. I mean, parts of it are. Resolution was included in the guidance not with respect to any kind of pickup in the prior deferred revenue but was resolution from this year's not having deferred revenue is included in the guidance. I mean, that just was a full year perspective. It could be a downside to our guidance. We'll have to see. We hope to have that resolved sometime in the first half of this year is what we hope. I mean, I haven't looked at the news, but even -- what's going on with respect to the elections early today may put a factor into that. I mean, it may not. But we're making a little bit of progress, and we hope to kind of have resolution. In terms of the chewing up of the deferred revenue, if it's resolved favorably really is going to get into some kind of accounting logic as well in terms of kind of the resolution. So more to follow on that. It's hard to predict.

Yaron Werber - Citigroup Inc, Research Division

Okay. And then I wanted to circle back actually and just talk about one thing that I neglected to ask before. Just the -- when you look at the -- I think it was the DEFINE, New England Journal of Medicine publication, that there was a mention -- talk about renal side effects. And there's a -- one sentence in there which you don't see in CONFIRM, and you guys to publish a lot of the renal side effects and -- but there's one specific sentence that says that there were no new cases of renal failure, which they defined as a serious adverse event. And that's sort of that defined literally. I think I'm almost quoting the report. And so I'm not sure if that said that there was no new cases of renal failure on TECFIDERA or there was no cases of renal failure, which ultimately were defined as serious adverse events. I don't know if you can maybe just talk about the safety of the drug from a renal perspective, what you see in terms of proteinuria, creatinine elevation. And did you see any cases of renal failure?

Paul J. Clancy

Got you. I'm not sure. I mean, nothing...

Yaron Werber - Citigroup Inc, Research Division

But nothing new to report?

Paul J. Clancy

Nothing new to report on that front.

Yaron Werber - Citigroup Inc, Research Division

Okay. I think what you guys have said, that there was -- the creatinine elevations were identical to placebo in some [indiscernible].

Paul J. Clancy

As was proteinuria.

Yaron Werber - Citigroup Inc, Research Division

As was proteinuria, okay. And did you -- I think you guys have commented there were no cases of renal failure in that study?

Claudine Prowse

[indiscernible]

Yaron Werber - Citigroup Inc, Research Division

There was no serious renal event. I -- okay. Because I've talked to you guys in the past, and there's -- I believe you've commented there was no cases of renal failure. Okay. Any other questions on MS? I was going to move maybe quickly to hemophilia. Anytime you guys want to raise your hand go, for it. Just go ahead. Question was?

Unknown Analyst

[Indiscernible] to the agency?

Paul J. Clancy

You -- with respect to TECFIDERA?

Unknown Analyst

Correct, sorry.

Paul J. Clancy

Yes. No -- nothing -- no updates on the regulatory status today. I know it -- I appreciate that it's certainly on everybody's mind but no updates today as it relates regulatory status. And that's got nothing to do with any concerns or feel that we're still on track. Just no updates.

Yaron Werber - Citigroup Inc, Research Division

How -- I'm going to ask about hemophilia, hemophilia B Factor IX and maybe -- the profile of the product suggests that it's going to lend itself to once a week and about half can be doses of every 2 weeks. So the data is phenomenally interesting. The -- one of the -- and that's a game changer in that area. The one thing that I wanted to kind of key in on is, how do you think of the competition. So when you look at CSN and you look at Novo, their data also suggest that it can lend itself to be used as infrequently. But I think to certain degree, some of those products can have a slightly longer half-life. So my question has to do -- do you see a chance where the other products can ultimately be dosed in the same frequency but ultimately lead to a higher trough? And does that give them a competitive advantage? And if so, what can you do against that?

Tony Kingsley

Yes, that's a good question. That is a possibility, that it can go in that direction. Look, the 2 questions are will long-acting factors -- what portion of the market will long-acting factors capture. And I think you would argue, in factor IX in particular, they ought to capture a big chunk of the market, and that will actually encourage more prophylactics because I think the treatment intervals we talked about are that long. The second thing we've got is where do we stack up within the long-acting class. That's a function of lead time. We -- getting to market first matters. This is a sticky, pretty conservative market that doesn't switch very often. So we think there's some benefit on that front. And then the second thing will be look, they don't -- we have to wait for all that data to play out, right? But given that hypothetical is the mechanism of action, we like our mechanism of action, and we think there may be some advantages on that front. But we recognized competition is coming, right? We think the class is improved for long acting. Also true in factor VIII, and we want to get there first and convert as much of that market as we can hang on to it.

Yaron Werber - Citigroup Inc, Research Division

And with factor VIII, again you're showing an improvement over the current standards. The one sort of criticism that we hear is that the message of hey, doc, or hey, patient, so then you can take the same number of injections annually just micro prophylaxis as opposed to on demand. But to a certain degree, the physician who was maybe a little bit more skeptical says that's nothing new. We've been hearing that message for a while. And unfortunately, to my patients, it just doesn't resonate enough. What can you do? Do you have any sense what percentage of the market is really kind of stuck and in their knowledge in prophylaxis? And then what can you do to really address that market dynamic?

Tony Kingsley

Yes. So on the more moderate to severe, which would be the prophylaxis segment, there's -- probably 65% of that market is episodic today, meaning it's not on prophylaxis. So in -- there is -- with longer-acting factor -- and the big reason people won't move to prophylaxis is the frequent injections right? So the longer-acting factors make it more likely that people will move to prophylaxis. And the one ARM of our study was intriguing, kind of saying that you could treat yourself on demand with 50-some -- 50 infusions or you could treat yourself prophylactically and you get a tenfold reduction, at least. That's [indiscernible]. I think that is news to the market. I think 1.5 halfway is news to the market. So there's an opportunity in the existing prophy patients who have the opportunity to extend the intervals. This is new. The competition is saying it's not new. They're fundamentally wrong. It is new. We have a longer half-life. Longer half-life is the #1 unmet need in the market. And the question becomes: will that translate itself into a label and a set of operating instructions in a commercial approach that will in share? I would argue that you could believe that will happen. The second question is can you grow the prophylaxis market? Well, I think there's compelling and interesting data there. There are some more of the barriers to that in some ways because you have to convince people to go on prophylaxis. But again, the extended half-life is a real advantage there. So I think it is news. I think the competition is pretending it's not news and will try to confuse people by saying it's not news. We believe it's news.

Yaron Werber - Citigroup Inc, Research Division

Yes. The prophylaxis segment is going to be sort of the older patients who are less active, who kind of used to be on prophylaxis, kind of given up a little bit. The -- when would it -- this market is -- I don't know if it's necessarily that different from other markets, but there's going to be docs who are early adopters and there's going to be docs who have an awful lot of patients who -- or potentially have seen in fact in HIV infections or sort of in that older population who are going to be more resistant to new drugs, and that there's also the opportunity to really move to prophylaxis. Do you kind of -- there's 2 headwinds there, right? One was about the historical infection issues and then, two, they're older. What can you do? I mean, we will grow. We will -- following Hydrotech [ph], we're very comfortable with new products. But nevertheless, you run into these docs all the time, who are very conservative. What can you do to change sentiment?

Tony Kingsley

Look, it's -- data and education are the most important things. I mean, it's not that different. This is a very concentrated market in terms of the number of treatment centers. And therefore, the number of docs and actually nurses can be influential in that area also. So look, you have to have a field force and you have to have a medical education. You have into think the size to that. There's not a lot of logic to make it 3x as big because there just aren't that many targets. At the end of the day, it's data that moves people, and it's with that education and promotional activity. That's what we think is the key to success.

Yaron Werber - Citigroup Inc, Research Division

And with the initial label, any -- and I don't know if you can give us a little bit of a sense what percentage of the factor IX and factor VIII market can you address with the initial label?

Tony Kingsley

I don't have the label yet, so it's hard to speculate on answering a question that specifically.

Yaron Werber - Citigroup Inc, Research Division

Well, let me rephrase.

Tony Kingsley

Yes.

Yaron Werber - Citigroup Inc, Research Division

Based on the current data that you generated that you submitted to FDA.

Tony Kingsley

Yes, we think there's a meaningful portion of the, let's take factor VIII, which is a big one. We think there's a meaningful portion of that market which is there's call it 35% of the patients with the majority of its units are already in prophylaxis. There's a subset of those -- there's a very clear value proposition to switch people to a product with a longer half-life. That's a material benefit. There are all sorts of sub-segments and resistances within that, but there's one -- and then there's this 65% of the market, again a minority of the volume, a smaller amount of the volume that we think is -- has the potential or some meaningful portion of that to be moved to prophylaxis where they have none of that.

Yaron Werber - Citigroup Inc, Research Division

So in other words, the segment that you're probably not going to have in the label is the new kid?

Tony Kingsley

That's right.

Yaron Werber - Citigroup Inc, Research Division

To move up.

Tony Kingsley

Yes.

Yaron Werber - Citigroup Inc, Research Division

But you can potentially have peds on? Or that's not clear?

Tony Kingsley

No, I'd probably not.

Yaron Werber - Citigroup Inc, Research Division

Probably not.

Tony Kingsley

Right.

Yaron Werber - Citigroup Inc, Research Division

So it's really going to be an adult market initially?

Paul J. Clancy

Yes, yes. But we base those things, as everyone knows. So that makes the difference in terms of use. As well as, moving on-demand to prophylaxis, that's a potential. And then clearly, right, I mean, initially, it's focused on the United States, as you know, right? The European authorities have asked for the kids' trial in order to get approval. That will take a couple of years. There are other parts of the world that we can start to begin to prosecute and should try to roll out. But I think a broad thesis around that piece is going to be more than likely a slower ramp because of some fundamentals in the marketplace. We've ascribed to that as well.

Yaron Werber - Citigroup Inc, Research Division

Okay. Any -- I was going to ask about as I think of kind of Biogen, you -- as you know, there's probably goes distribution of MS. You've been mostly U.S. and sort of European and even the key European markets kind of centric company. Is there an opportunity for you guys to expand globally maybe even with direct agreements in the ground or a Biogen distributor or Biogen presence in Latin America and Asia?

Paul J. Clancy

Yes, we have direct operations in Latin America, in certain countries, in Argentina and Brazil. We have direct operations for a long period of time in Australia. We have direct operations in Japan, which we see as a very interesting market even -- despite macro trends, we see that as a very interesting market.

Yaron Werber - Citigroup Inc, Research Division

That's a new territory for you?

Paul J. Clancy

No, no.

Yaron Werber - Citigroup Inc, Research Division

No? I think...

Paul J. Clancy

No ,we've been there probably 7 or 8 years. So...

Yaron Werber - Citigroup Inc, Research Division

TYSABRI was approved...

Paul J. Clancy

We've been there really just with AVONEX.

Yaron Werber - Citigroup Inc, Research Division

Yes, okay. Yes.

Paul J. Clancy

Yes. I think that is largely our footprint given the products that we have and the therapies that we have. So when people ask us what's our China strategy, it's very -- it's fundamentally a different answer than kind of large pharmaceutical companies. Certainly, we'd like to be there someday, but I think products and therapies are going to have to pull us there as opposed to push.

Yaron Werber - Citigroup Inc, Research Division

And what's the strategy for TECFIDERA in Japan?

Paul J. Clancy

We'll seek approval over the next couple of years.

Yaron Werber - Citigroup Inc, Research Division

Okay. And the bioequivalence study has been conducted or not yet?

Paul J. Clancy

It's under way.

Yaron Werber - Citigroup Inc, Research Division

Yes, okay. And just maybe just remind us. You mentioned TYSABRI was not approved -- I thought it was approved a few years ago. I'm obviously wrong. What happened with TYSABRI in Japan? It was never introduced.

Paul J. Clancy

I don't have an answer for you, yes. It was not registered, yes.

Yaron Werber - Citigroup Inc, Research Division

But do you plans to register or...

Paul J. Clancy

Yes, yes.

Yaron Werber - Citigroup Inc, Research Division

Yes, there is.

Paul J. Clancy

Yes.

Yaron Werber - Citigroup Inc, Research Division

Okay.

Paul J. Clancy

Absolutely.

Yaron Werber - Citigroup Inc, Research Division

But that -- is that on the critical path ahead of TECFIDERA? Or is that something that you follow with TECFIDERA?

Tony Kingsley

Yes. Yes. It would be so -- ahead of.

Yaron Werber - Citigroup Inc, Research Division

Okay. Any questions from the audience? Paul, I was going to ask you about this year -- we're going to kind of move over to financial questions. This year, there's is going to be -- a lot of the investments -- we're still seeing a lot of R&D investments and so we're still seeing obviously SG&A investments in the launch. Help us understand, as you kind of think 2 to 3 years out, I mean, especially now with what's going on with taking over some of the -- a lot of responsibilities, you're potentially going to have a lot more leverage. How do you guys think about there's going to be some natural synergies on SG&A. Help us understand, what more investments do you need to make this year? And kind of what -- where do they go next year, not financially-wise but just kind of strategic? And then how do you think of R&D? Are you guys managing R&D as a percentage of revenues? Or are you just managing it based on whatever the pipeline going to...

Paul J. Clancy

Yes, we -- let me kind of give you the broad view of kind of the time period we're coming through, which really is kind of the guidelines for this question. We're coming through a period of 5 or 6 or 7 arguably late-stage programs. If we had this conversation 3 or 4 years ago, we would have never thought at the back end of 2012 we'd be kind of prosecuting all of those, that at some point in time, those -- some type of probability of success would have taken off. But we've been very, very lucky and very fortunate that we've moved the majority of those programs through, and the majority of those programs -- I think the exception would be dexpramipexole -- the majority of them resulted in favorable Phase III results. That kept our R&D at a pretty high burn just because of the nature of late stage -- the cost of late-stage programs. It then spun into in 2012, and what we're doing in 2013 is investments in SG&A for prelaunch approval. Now again, if you had asked the question 3 or 4 years ago about BG-12, we probably would have thought we would have be able to leverage our MS infrastructure. But because of strategic reasons, we -- in essence, we decided to go with a dedicated focus, which creates dedicated sales and marketing efforts and sales and marketing spending across each of the products. It's just a very unique time for the company within -- and very fortunate time for the company on the MS front that we can kind of push forward all of these. I think both of those start to wind down as we get to call it into 2014. Late-stage programs, as the Phase III is finished, the spending doesn't go away, but the upward trajectory and the upward pressure on spending starts to decline. And I think our prelaunch spending, we did a lot of it in 2012 in the United States. We have more to come in 2013 outside the United States in kind of a country by country basis for TECFIDERA. And then we have some prelaunch spending planned for later in this year around hemophilia, around the factor IX and then factor VIII programs. The timing on that is in our guidance. For this year, I think it's going to be a little bit of a function of whether or not we get priority review or not. I think PEGylated interferon, I think we end up leveraging off of that, off of the MS infrastructure that we have. So look -- and then to kind of complete the question is R&D spending likely becomes much more of a function of rebuilding what we -- more of a strategic imperative that we have around rebuilding the early-stage pipeline. And that's a function of the success coming out of discovery efforts as well as the success from a business development and collaboration standpoint. With all that said, we hope to have decent leverage on both R&D and SG&A. And hopefully, a lot of that's driven off of the denominator as much as the numerator.

Yaron Werber - Citigroup Inc, Research Division

So 2014, as you said, you kind of wind down. On an absolute basis, we should think of '15 as being potentially down over '14? Or is it because -- let's take a bit more from a percentage of revenue?

Paul J. Clancy

I think percentage of revenues is probably the way to think about it. But not the upward pressure that we saw in R&D spending over the last, call it 2, 3, 4 years.

Yaron Werber - Citigroup Inc, Research Division

Okay. And Tony, I don't know if you can comment, but -- and whether they -- just remind me if you have, but have you guys hired the full sales force already for TECFIDERA in the U.S.?

Tony Kingsley

Yes, in the U.S. in place.

Yaron Werber - Citigroup Inc, Research Division

And how many reps have you hired? Have you said?

Tony Kingsley

We haven't said how many we have.

Yaron Werber - Citigroup Inc, Research Division

Okay. If you want to, you can say now. And what about in Europe? Where are you in the process there?

Tony Kingsley

So since the main launch will be Germany in 2013, we're in the process of putting that field force in place now.

Yaron Werber - Citigroup Inc, Research Division

What about Italy? So you're not thinking that Italy and France are going to come on this year at all? or...

Tony Kingsley

Maybe. But it's -- the real question in Europe is not just approval but it's the reimbursement timelines, and the reimbursement timelines are getting worse, not better. So I would say unlikely to have a big impact in '13. But we'll work hard to get them reimbursed in the market as fast as possible.

Yaron Werber - Citigroup Inc, Research Division

Okay. Well, great. I think we're out of time. So Tony, Paul and Claudine, thanks so much for coming.

Paul J. Clancy

Yes, we appreciate it.

Tony Kingsley

Thank you.

Yaron Werber - Citigroup Inc, Research Division

Thank you.

Tony Kingsley

Thanks all.

Yaron Werber - Citigroup Inc, Research Division

Thank you.

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