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Elan (NYSE:ELN)

Q2 2007 Earnings Call

July 26, 2007, 8:30 am ET

Executives

Kelly Martin – President, CEO

Shane Cooke – Executive Vice President, CFO

Lars Ekman – Executive Vice President, Research & Development

Analysts

Ian Hunter – Goodbody Stockbrokers

Bill Tanner – Leerink Swann

Corey Davis – Natexis

Orla Hartford – NCB

Jack Gorman

TRANSCRIPT SPONSOR
Wall Street Breakfast

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2007 Financials Results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time if you have a question, please press *1 on your telephone. If you would like to withdraw your question, press the # key. As a reminder, this conference is being recorded, Thursday, July 26th. I would now like to turn the conference over to Chris Burns, Senior VP of Investor Relations.

Chris Burns

Hello, everyone. Welcome to Elan’s Second Quarter 2007 Financial Results call. I hope you’ve had a chance to review our press release. If not, we’d encourage you to go to our Web site at Elan.com where you can find it. Joining me on today’s call will be President and CEO, Kelly Martin; Executive Vice President and CFO, Shane Cooke; and Executive Vice President Research and Development, Dr. Lars Ekman. Today we’ll take you through our financial results and provide and R&D and business update.

Before we begin with Kelly’s remarks, I’d like to review Elan’s safe harbor statement. Let me remind you that today’s call will contain forward-looking statements about Elan’s financial conditions, results of operations, business prospects, and products and research. These forward-looking statements involve substantial risks and uncertainties that could cause actual results to differ materially from those described or projected. A list of these risks and uncertainties is included in our second quarter press release from this morning, and in our 2006 annual report on Form 20-F and our Form 6-K filed and furnished with the SEC.

Elan assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, today’s conference call and Webcast will include certain financial measures such as EBITDA; earnings before interest taxes depreciation and amortization, and adjusted EBITDA; EBITDA plus or minus share based compensation, net gains or losses on divestment of businesses, other net gains or charges, net investment gains or losses and net charges and debt retirement. These financial measures are non-GAAP financial measures under SEC rules. A reconciliation of these non-GAAP financial measures and most comparable GAAP measure are included in today’s press release.

Now I’d like to turn the call over to Kelly Martin.

Kelly Martin

Thanks, Chris. Good morning/afternoon to everybody. I’d like to welcome you to the call on behalf of both myself and Kyran McLaughlin, our Chairman. As Chris said, joining me on the call today will be Shane Cooke our CFO, and Lars Ekman our President of Research and Development. It just wanted to provide a few opening and introductory comments to our second quarter results. It’s a quarter, first and foremost, that I think demonstrates our continued focus and our progress from an execution point of view against our overall game plan. A few highlights financially, as Shane will go through in more detail, our revenue was up 38% with specific growth in both Tysabri and our drug technology business unit. At the same time we’ve kept our operating costs flat and we continue to reallocate and allocate costs against opportunities as they present themselves.

Secondly, from a talent perspective, we continue to add very selective, very specific talents to Elan. Over the last couple, a few months, we’ve added a number of significant hires. Two areas I’d like to highlight in particular, one is we’ve added a new head of our Biological Manufacturing of Product Science area, and we’ve also added somebody into the drug technology business who is going to focus primarily on product and business development, and continue to grow out that business over time. Futuristically, we’re looking to continue to add people in particular to the neurology space, with obviously a particular focus on Alzheimer’s.

From a pipeline point of view, our pipeline continues to move forward and advance. Obviously, the highlight of the second quarter, which Lars Ekman will go into, is with our partner Wyeth, the announcement that we’d be moving AAB-001, which is currently in phase two, that we would hope to move into phase three and begin that trial sometime before year-end.

Lastly from my comments, with Tysabri we continue to make progress in Tysabri across the board. We are very pleased with the progress and the traction that we have in the EU over the course of the last quarter we’ve launched in France, Greece, Spain, Turkey, all of which are showing early signs of very good traction and uptake, and we also had the reversal from NICE in the UK with regard to national reimbursement for Tysabri for MS. Tysabri becoming the first drug in the UK to get NICE approval from a reimbursement point of view, which we think bodes very well for the product as we mature it forward across the various and different markets.

In the U.S. we increased our target position market by 20%, the number of physicians that we have targeted initially, we still believe, based on the broad product mix of the current market in the U.S., that there remains upside in the U.S. and the potential in the U.S. remains significant. We recognize the complexities in the U.S., and we’re working very closely with our partner Biogen Idec. on making sure we have and maintain the type of traction that we think we need so that we ultimately reach our potential, and we have a very specific focus with the key neurologist with the biggest MS practices that are located throughout various locations in the U.S.

So, broadly speaking, the quarter was another step forward from an execution point of view, from a financial point of view, a talent point of view, progress on our pipeline, and continued uptake globally with Tysabri as an asset in MS.

With that I’ll turn it over to Shane who will go through in more detail our financial performance, and he will also spend some more time on the Tysabri specifics. Shane.

Shane Cooke

Thanks, Kelly. Good morning and good afternoon to everybody. My prepared remarks are going to focus on three aspects of the results, and the results themselves, performance of Tysabri, and also the impact on our expectations for 2007 of the approval of the generic competitor to Maxipime.

As we’ve done in the past, we set out in the appendix (inaudible) of the press release an analysis of our results between Tysabri and the rest of the business. These appendices also provided an analysis of adjusted EBITDA losses, which I will refer to during my presentation. The metrics I’ll present in relation to Tysabri are as of the middle of July and are the same as those presented by Biogen as their results call earlier in the week and are set out in the press release as of this morning.

Turning firstly to the overall results for the quarter. The net loss for the quarter increased to $141.1 million as a result of the inclusion of a non-tax charge of $52.2 million, which we took as a result of the approval and launch of a generic competitor to Maxipime, and the charge of approximately $15 million relates to the consolidation of our activities in the west coast into one size in San Francisco. The net loss before these other charges fell by 18% to $74 million or $0.16 per share. The improvement in underlying performance is reflected also in a 70% reduction in adjusted EBITDA losses to $6.9 million. This improved performance reflects a 38% increase in revenues driven by Tysabri, and improved operating margins, which resulted from holding SG&A and R&D costs together at about the same level as in the second quarter of 2006.

Revenue growth was driven by a solid performance from Tysabri, which contributed $46.9 million in sales. Revenue for Maxipime fell by 16% as a result of the approval in June of a generic competitor. This was more than made up for by a strong performance from EDT with product revenue growing by 30% to $74 million. Product revenue growth in EDT resulted from a strong performance from a number of products, including Tricor and Skelaxin, and from the inclusion of a revenue milestone of $5 million in relation to Zanaflex.

The gross profit margin on revenue fell from 65% in the second quarter of 2006 to 56% in the second quarter of 2007, reflecting the lower gross margin on Tysabri sales as a result of the collaboration agreements with Biogen on how we account for that. Excluding the revenues on costs associated with Tysabri, the gross profit margin was 65% in the second quarter of 2007, consistent with the same quarter in 2006, and at the upper end of previous guidance. We were pleased that the increase spend on R&D from early relation to advancing our Alzheimer’s programs was offset by a reduction in SG&A expenses.

Now I’d like to make a few comments on Tysabri, which are based on appendix one of the press release. Global in-market sales were $72.1 million, an increase of nearly 50% of that reported in the first quarter, reflecting a solid performance. As I explained before, the way the collaboration works with Biogen who manufactured Tysabri is different between the U.S. and the rest of the world. In the U.S. market we purchase product from Biogen and we are responsible for its distribution. Consequently, we include all of the net revenues from Tysabri sales in the U.S. in product revenue, which amounted to $46.9 million in the quarter. We buy product from Biogen at a price which includes the cost of manufacturing, plus Biogen’s share of the gross profit. And this is included in cost of sales together with royalties on worldwide sales. In the rest of the world Biogen Idec. is responsible for distribution, and we receive a royalty equivalent to our share of the net profit on sales in the rest of the world. This royalty is included in product revenue.

In the second quarter of 2007 we recorded no net revenue from Tysabri and the rest of the world sales. This reflects our share of the net loss for the quarter of $3.8 million based on net sales in the rest of the world of $25.2 million. This loss was offset by the reimbursement of Elan’s directly incurred costs, which coincidentally amounted to $3.8 million.

Our share of the R&D costs associated with Tysabri and the U.S. SG&A costs are included in operating expenses in our income statement. We recorded a net loss associated with Tysabri of $14.2 million, an almost 50% reduction from the $28 million recorded in the second quarter of 2006. The reduction in loss reflects our share of the gross profit on revenues from Tysabri in the U.S., offset by our share of the losses associated with the launch of Tysabri in the rest of the world. SG&A and R&D costs were held at about the same level in Q2 ’07 as in Q2 ’06.

As we reported earlier this week, as of mid July there were approximately 14,000 patients on Tysabri globally, comprising 1,000 in clinical trials, 8,600 in U.S, and over 4,300 in the rest of the world. Over the seven weeks since our last update at the end of May, an average of about 300 net new patients have been added globally each week.

In previous quarters we’ve given the number of patients who have enrolled in the TOUCH program in the U.S. as a way of gauging our progress there. As I’ve previously signaled, now that we are on the market for a year, it’s more appropriate to give the number of patients on therapy, as this is what ultimately drives revenue. I can tell you though that the average number of TOUCH forms received per week since we last reported is consistent with last quarter. We’re also finding that between 75% and 80% of patients who enrolled in TOUCH ultimately go on drug and are staying on drug.

As we previously guided, we need about 15,000 patients on therapy to cover the plans aggregate annual spend on the Tysabri brand in MS of about $300 million, which we share with Biogen Idec. This accounts for only 3% of the global market, and with the current rate of net patient adds, and about 13,000 on therapy as of mid July, it’s a level we are optimistic we will exceed sometime this quarter. There are not many drug launches that get to profitability in such a short time frame. This demonstrates the operating leverage we have at Elan as sales of Tysabri accelerate.

In the U.S., over 1,800 doctors have now enrolled patients in the TOUCH program with 8,600 on therapy. We expect the number of patients to accelerate as more and more doctors prescribe Tysabri, and those doctors that are already prescribing Tysabri bring more of their patients onto therapy. We have received some comments that the number of new net patient additions in the U.S. is declining. It’s difficult until we get further into the year to come to this conclusion as the periods between the updates we’ve been getting is so short. For example, since we last reported in mid April, we have had weeks where we’ve added 125 patients and others where we’ve added over 200.

In the rest of the world market there are over 4,300 patients on therapy, predominantly in the EU. Germany and Sweden account for almost two-thirds of the patients on therapy here. We recorded our first sales of Tysabri in France, Spain, and Greece, during the second quarter, and expect to see momentum continue to build in the rest of the world market as we make progress in other countries. We were particularly pleased, as Kelly mentioned, that NICE in the UK has recommended the use of Tysabri to treat people with highly active relapsing and remitting MS in recognition of its superior cause efficacy. Tysabri is the first treatment for MS to be recognized for use by NICE.

We’re pleased with the solid progress we and Biogen are making with Tysabri, particularly in the EU market, and we remain optimistic that as the patient exposure continues to grow and the safety profile becomes clearer, Tysabri with it’s proven efficacy will eclipse all existing therapies, providing a much needed therapeutic option to a significant proportion of the patient population.

Finally, I’d like to review with you our expectations for 2007. Previously, we guided revenues, excluding revenues from Tysabri, to exceed $500 million with a gross profit, excluding the cost of Tysabri sales, in the range of 60% to 65%. With the earlier than expected approval of a generic competitor to Maxipime, partially offset by a stronger performance from the rest of the business, we expect revenues excluding Tysabri to approach, if not exceed, $500 million. And for the gross profit margin for 2007 to be within the previously guided range of 60% to 65%.

Included in previous guidance for R&D and SG&A expense of $600 million to $650 million for 2007 with approximately $100 million in direct costs associated with Maxipime and Azactam. This included approximately $60 million in non-cash amortization and approximately $40 million in sales and marketing expenses. As a consequence of the approval of a generic competitor to Maxipime, and in anticipation of the approval of a generic competitor to Azactam, we will adjust our commercial infrastructure (inaudible) and reduce related sales and marketing expenses. Once completed, this restructuring is expected to reduce annual cash costs by about $40 million. In addition, as a result, principally if the non-cash amortization charge taken this quarter of $52.2 million there will be no amortization expense in relation to Maxipime and Azactam in 2008 and beyond.

In summary, as a result of the adjustments we’re making to the commercial infrastructure and the write-off intangible assets associated with Maxipime and Azactam, our SG&A costs are expected to be approximately $100 million less going into 2008. It’s expected that the upfront costs associated with the restructuring will be about $10 billion to $15 billion and will be included in other charges in the second half of 2007.

Previously we had targeted adjusted EBITDA losses to be less than $50 million for the full year 2007 and to get to break-even by the end of 2007. Not withstanding the earlier than expected entry of generic competitor to Maxipime, and as a result of the strong performance in the rest of the business, and the actions we’re taking to reduce costs, we will try and contain adjusted EBITDA losses for 2007 at approximately $50 million or lower. However, we may not reach break-even on an EBITDA basis until sometime in 2008.

That concludes my remarks. I look forward to answering any questions you may have later. I’ll hand it over to Lars now.

Lars Ekman

Thank you, Shane. Good morning, or good afternoon, to everyone. I’d like to spend the next few minutes discussing the following topics. First, I’d like to give you an update of our progress with our Alzheimer immunotherapeutic programs in collaboration with Wyeth. Secondly, I’ll spend a few moments reviewing our other Alzheimer programs in clinical development, ELND-005, also known as AZD-103, which we develop in collaboration with Transition Therapeutics. Thirdly, I’d like to introduce a new small molecule entering clinical development for MS. And, finally, I will give an update on Tysabri data presented at ENS, and give an update on our regulatory filings for Tysabri in Crohn’s Disease.

Let me now turn to our Alzheimer immunotherapy portfolio and start with the definition of a lead immunotherapy candidate currently in phase two. This pilot is ongoing with data anticipated mid 2008. The data from a smaller beta amyloid imaging study will also be available at that time. In parallel with these phase two trials we have an ongoing phase one trial in Japan. During the quarter, we and Wyeth decided to move into phase three with Bapineuzumab. The decision to move into phase three was based on the totality of what the companies have learned from our Alzheimer immunotherapy programs, including the scheduled interim look at data from our ongoing phase two study, which remains blinded.

We anticipate the pre-phase three meeting with the FDA to take place shortly. As soon as the trial protocol has been agreed upon by the U.S. and EU regulators it will be posted together with a list of participating sites on clinicaltrials.gov. The preparation for the trial is making good progress, and in the U.S. alone we have recruited more than 130 sites.

I’m also pleased to inform you that patient dosing is now underway in our phase one clinical trial with a new subcutaneous formulation of Bapineuzumab. This formulation increases patient convenience, and thus the potential to broaden the commercial opportunity both in terms of market penetration and geographic reach. In addition, our active immunization program, ACC-001 has now entered phase two clinical trials, and we are currently dosing patients. This international trial is expected to enroll more than 250 patients, with about 80% of these patients being enrolled in the U.S. Patients are currently being dosed at our European sites. The U.S. part of the trial will begin enrolling patients within short and participating sites will be listed on clinicaltrials.gov once the study initiates. Finally, our program AAB-002, our second passive immunotherapeutic approach, is expected to enter the clinic later this year.

Now I’ll provide a brief update on ELND-005. The FDA has granted fast track designation to our new Alzheimer small molecule, ELND-005, which is being developed in collaboration with Transition Therapeutics. We are making good headway with multiple phase one trials and we plan to move into the next clinical phase around year-end.

Finally, I’d like to wrap up the ARP section by updating on data that was presented in June at the International Conference on the Prevention of Dementia in Washington. At this meeting the first full dataset from the four and a half year follow-up study with AN-1792 was presented. I’d like to quickly recap the data from this follow-up phase two trial. Treatment with AN-1792 was discontinued after two doses due to a transient adverse event. However, one year follow-up will be that AN-1792 antibody responders showed improvement on cognitive and memory endpoints. The recent follow-up study assessed both the safety and the efficacy profiles four and a half years later. The responders showed a significantly slower decline on the DAD score than placebo patients. This scale quantifies the quality of life in Alzheimer patients. The data also revealed a statistically significant difference in favor of responders due to the dependence scale. This scale evaluates the patient’s dependency on the caregiver.

In summary, approximately four and a half years after being immunized with AN-1792 responders showed statistically significant and clinically meaningful reduced function decline and improved cognitive function.

I would thereafter like to introduce ELND-002, which is a new compound emerging from Elan’s discovery efforts. ELND-002 is a small molecule targeted alpha four beta one, and is well positioned to be efficacious in MS as it aims at the same target as Tysabri. We anticipate initiating phase one clinical trials with ELND-002 later this year.

Now turning to Tysabri as I provide a brief update on the regulatory status of Tysabri for Crohn’s Disease. In Europe the EMEA has informed us that the Committee for Medicinal Products for Human Use, the CHMP, has adopted a negative opinion on the marketing application for the use of Tysabri in patients with Crohn’s Disease. As was recently announced along together with Biogen Idec. plans to apply for a reexamination of the negative opinion through the appeal procedure. We can expect a decision on the (inaudible) in the first quarter of 2008.

In the U.S. on July 31st, that is the upcoming Tuesday, the FDA’s GI drugs advisory committee with review Tysabri for patients with Crohn’s Disease. The DLA is reviewed by the FDA and we anticipate regulatory action later this year. The U.S. assessment differs significantly from the European situation. In the U.S. we have an established safety monitoring system, the TOUCH program, which has as its main objective to screen out those patients for immune compromise prior to initiating treatment with Tysabri, thus mitigating the risk of PML.

I would now like to briefly review the efficacy and safety data for Tysabri in MS that was presented at the EMS in Greece in June. The three year data showed that Tysabri had a sustained treatment effect on clinical relapses as the risk of disability progress in MS patients treated up to three years. The annual relapse rate decreased with 58% that is consistent with the data we had at one and two years. The risk of disability progression sustained three months decreased 42%. The risk of disability progression sustained over six months decreased with no less than 54%.

New data from the TOUCH prescribing program, the TYGRIS safety study concerned the safety profile from previous clinical studies of Tysabri. This latest report, no new cases of PML were reported after evaluating 7,500 patients. As a reminder, there are today 21,000 patients worldwide who have been exposed to Tysabri, and there are approximately 14,000 patients currently on the drug. The overall safety profile was similar to those reported in clinical trials experience.

We are currently investigating additional indications for Tysabri together with Biogen Idec. We have also initiated three clinical studies in oncology and in addition approved concept trial in (inaudible) planned for the first half of 2008.

That concludes my remarks for this morning. I’m happy to answer any questions you may have during the Q&A session. I’ll now turn it back to you, Kelly.

Kelly Martin

Thanks, Lars. And thank you, Shane, for your comments. Let me just wrap up a few things before I turn it back to Chris Burns. I believe the second quarter was another demonstration of our execution against our plan. Let me just highlight our plan for everybody. First and foremost is to maximize the opportunity that we have in Tysabri, and partner very closely with Biogen Idec. on doing that. As far as Europe and the U.S, obviously, for MS and for other indications as they afford themselves.

Secondly, to continue to move our pipeline forward, especially our Alzheimer’s pipeline, the immunotherapeutic programs, in partnership with Wyeth are continuing to move forward. Our small molecule partnership with Transition Therapeutics continues to move forward. And our own other internal pipeline programs that are not partnered are all moving forward. Last but not least, to remain at all times, both financially and operationally disciplined, so that we can then again maximize the opportunity before us. I think the second quarter demonstrated, once again, our progress against those major goals and objectives, and we look forward to answering any questions that you may have. I’ll turn it back to Chris Burns.

Chris Burns

Thanks, Kelly. If you could please remind the callers about the process to ask questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ian Hunter of Goodbody Stockbrokers.

Ian Hunter – Goodbody Stockbrokers

Good afternoon, gentlemen. Just a question on Tysabri. I’m just wondering if you can give us a timeline for the rollout of the drug in the UK, France, Italy and Spain? Then I’m thinking of active promotion rather than just patients on the drug because I appreciate you just said there are patients on the drug in France. So a timeline on that.

Then, if it’s possible, to give us a guide on the reimbursement rate that you’re being able to achieve in these different countries, and if you have that kind of average rate per patient across Europe.

Shane Cooke

We’ll be starting to promote in France, Spain, Portugal and Switzerland in the next couple of quarters. The UK, I think, is going to take a few months to get forward before we can actively promote. In terms of pricing, the pricing is broadly in line with what we’re getting in the U.S.

Ian Hunter – Goodbody Stockbrokers

Maybe just a quick (inaudible) on the U.S. Have you been under any kind of pricing pressure or pricing erosion over the past six months, are you still managing to command the $28,400 per patient per year?

Shane Cooke

We’re not under any pricing pressure.

Kelly Martin

No. There’s no pressure. I would just add to that, particularly in places like France where Biogen has a very good and established business. As Shane said, they’ll begin aggressively promoting over the balance of the next few months, but there’s already a good amount of activity based on what Biogen had in place previously, and obviously based on their Avonex activity.

Ian Hunter – Goodbody Stockbrokers

Let me just get an update here, what do you think the percentage of your target physicians in the U.S. are now in the TOUCH program, covering what percentage of patients that could potentially go on to Tysabri? And what do you think yourselves will be the catalyst to see the run rate tick up a bit? You said there, Kelly, in your remarks that you were having to monitor this carefully.

Kelly Martin

Well the original plans that we have with Biogen about the U.S. targets, we’ve targeted 2,500 neurologists in the U.S. And in broad terms those doctors see about 70% of the MS patient population in the U.S. So the 2,500 doctors have on their collective practices about 70% of the MS patients, the diagnosed MS patients.

As Shane said in his remarks, this is a big part of our focus with Biogen is to increase the participation consistently and steadily across the practices. So last time we gave an update from an earnings point of view between Biogen and Elan we had about 1,500 doctors, and now we have about 1,800 doctors. We estimate that these 1,800 doctors cover about 50% of the patients. Our goal by year-end, again with Biogen, would be to have all 2,500 doctors that were our original target using Tysabri in their patient practice. Obviously, then the denominator for us from a potential market opportunity over time is quite large, it’s upwards of 70% of the marketplace. So that’s where we’re tracking against the original 2,500 doctors and where they fit versus the size of that potential.

Ian Hunter – Goodbody Stockbrokers

Thanks very much.

Operator

Your next question comes from Bill Tanner of Leerink Swann.

Bill Tanner – Leerink Swann

Thanks for taking the question. I picked up on the newswire here, I guess, comments by you, Shane, about uptake in Europe being a little bit faster than expected, and in the U.S. a little bit slower. I don’t know if it was initially that there was a comparable market share for both of those regions. But maybe for you as well, Kelly, just following on the last question, in terms of flatter than expected in the U.S., if any of your field checks reveal what would be the cause of that, I would assume that the TOUCH program isn’t particularly burdensome. The PML concern, I don’t know if it’s a hangover from, obviously, the drug being launched and pulled from the market. So then what is it that actually reaccelerates that more towards the path that you guys had projected? I guess it sounds like there will be data at (inaudible) potentially in the fall on the (inaudible) procedure. I’m just curious what you could see change that?

Then just following on for Shane, I know you talked about $300 million per anum in expenses, how does that potential change then with Crohn’s approval?

Kelly Martin

The first part, Bill, the U.S. is complex because it’s a relaunch, number one. We’re working very closely with Biogen on making sure that we have the right traction with the right doctors. The key comes back to these practices, the 2,500 key doctors with the majority of MS patients going through their practice, and our collective goal has been, and continues to be, to just march forward against that path, and make sure that Tysabri becomes, for all the right patient reasons, make sure Tysabri becomes part of those individual and therefore collective doctors practices. I think as that happens there’s plenty of opportunity to expand and deepen the penetration of Tysabri as a percentage of each of their various practices.

So there isn’t any one specific hurdle that has one bullet answer because all of these practices are slightly different. There’s a wide range of these doctors, some of them have multiple hundreds of patients on Tysabri, and some of them have single digits. And everybody in between. So our goal is to march forward with doctors participating with their patients and their practice. And as we do that, what we are finding, again with Biogen, is that with that experience from both a patient point of view and the doctor point of view, that further traction follows that.

Shane Cooke

In relation to potential costs for Crohn’s, it will obviously depend on what kind of label that we would get. But I can’t see $300 million increase by much more than 10% or 20%.

Bill Tanner – Leerink Swann

It seems like, though, that in terms of the way it’s tracking thus far you could come in less than $300 million. Is that a fair way to think about it for MS alone?

Shane Cooke

No. I think for MS alone it will come in around the $300 million level. If you look at our PML account you must take into consideration that part of the spend is actually in relation to the rest of the world and not only against revenue. But you need to view that when you’re looking at the run rate on the (inaudible) So we think it will still be about $300 million split between ourselves and Biogen Idec.

Bill Tanner – Leerink Swann

Okay. Thank you.

Operator

Your next question comes from Corey Davis of Natexis.

Corey Davis – Natexis

Thanks very much. Maybe for Lars, can you go into the more detail on what both the FDA and the EMEA require for a disease modifying claim beyond the obvious 18 months duration. Things like endpoints, whether co-primary or otherwise, and trial design. I know Myriad is using this natural history staggered start design that admittedly I don’t really understand, is that something you’ll need to adopt as well in your phase three?

Lars Ekman

Corey, the FDA is very clear of what they are asking for. They are asking for one cognitive endpoint, and that can be either a (inaudible) or NTB, the Neuropsychiatric Test (inaudible) and that has to be combined with a quality of life endpoint, which could either be DAD or the physicians assessment, which is called CDR (inaudible). So you have to hit one quality of life and one cognitive. The FDA also requires indirect measure of disease modification. That can be, for example, a change in beta amyloid revealed on head scan or change in CSF (inaudible) which is a marker of disease activity. The Europeans do not ask for biological marker, however, they ask for slope divergence. So on the endpoints we’ve just discussed, they want to see that the slopes continue to diverge over 12 to 18 months.

Corey Davis – Natexis

And the design Myriad is using, is that something that you need to use?

Lars Ekman

I don’t think I would like to comment on their design. I can only quote our conversation with the agency.

Corey Davis – Natexis

The next question is can you share what you’ve learned about the potential for a vasogenic edema, and how you’ll be able to minimize the potential for that during the phase three? Also, once approved, my bigger question is would you anticipate the patients would have to be required to get regular MRI scans given that that edema is asymptomatic?

Lars Ekman

It’s important, your last comment there, the a vasogenic edema is primarily a lab finding. We can see it in the MRI’s, but basically we are very limited, if any, clinical findings. That’s one important point. The second point is that during the phase two in the relatively few patients that we’ve had we’ve been able to identify a time range when it occurs. We also are gaining knowledge of which patients could be at risk and how we should manage that risk. And, obviously, all of this would be reflected in the design of our phase three trial.

Corey Davis – Natexis

Great. If I could sneak one more in, maybe for Shane. How much of an uptake should we expect in the R&D line going into ’08, presumably this phase three is going to be fairly expensive, even splitting it with Wyeth?

Shane Cooke

I think, Corey, we better wait until we finalize that in the design of the trials and know how many patients are involved. But I don’t think it’s going to be a dramatic increase, but there certainly will be some increase in R&D.

Corey Davis – Natexis

Great. That’s all I have. Thanks, guys.

Operator

Your next question comes from Orla Hartford of NCB.

Orla Hartford – NCB

Thank you very much. Just on Tysabri for Crohn’s. The (inaudible) for the (inaudible) Just what exactly was the negative opinion based on whether the immunosuppression risk?

Lars Ekman

What is the basis of the appeal? Just remember, Orla, that the file was filed two years ago with the available data. Since then the process stopped. We had to restart the process. There were a number of questions that were discussed during the process that gave us an indication that the agency did not have full information on all of the subsets of patients. We believe that it would be a value for the industry to review subgroups as well, and that would be a basis for the appeal.

Orla Hartford – NCB

Just to end, Lars, when should we expect the next safety update on Tysabri?

Lars Ekman

The next safety update will be in October at the Ecterims meeting.

Orla Hartford – NCB

Just then, Shane, just looking at Maxipime, what does the guidance assume for (inaudible). Are you assuming a sharp decline in this quarter and then more of a moderation in the fourth quarter, or will it more of a gradual (inaudible)?

Shane Cooke

We have stuck with the view for a sharp decline in the third quarter. The guidance that we’re looking at $500 million reflects that and reflects what we see coming into the rest of the business.

Operator

Your next question comes from Jack Gorman.

Jack Gorman

Thank you. Two questions, please. Firstly to Lars. You outlined the AAB-001 timeline. I’m just wondering if you can give us a flavor for when we should expect an update from yourselves on the actual filing strategy, and in particular the subpart E option that you have talked about before?

Secondly, on Tysabri, it looks in the U.S. that you have added approximately 2,000 patients over a three month period from mid April to mid July. Could I just get a sense of how that growth splits between new physicians coming on board and prescribing patients, and higher penetration of the existing physician base in the U.S.?

Lars Ekman

I’ll start, and then Shane can take over. Considering the filing strategy, first we need the full dataset on the phase two study. So we have a clear picture of what the outcome of that trial will be. Then we need to have at least 1,000 patients phase three trial. Whether we will use the phase two in combination with the phase three in terms of efficacy or safety will all be driven by the data. The speculation that we could use the phase two data by itself is not correct, it has to combined with all or a subset of the phase three data. So I would think that in about a year’s time we will be able to give better guidance on this.

Jack Gorman

Lars, is that additional safety data you require from the phase three or is it safety and efficacy data?

Lars Ekman

That we can’t speculate. From a formal point of view, from a sub part E perspective, we need at least 1,000 patients. The ICH guidelines suggest that you need at least 1,000 patients for a biological in terms of safety. To what extent we reduce the efficacy and safety all will be driven by the ultimate data.

Shane Cooke

Jack, in relation to your question on Tysabri. I don’t have the details of how many of the patients are coming from new physicians during the quarter, but I think if you look at it it’s about a 30% increase in the number of patients. We’ve seen about a 20% increase in the number of doctors. So clearly it’s coming from both additional patients per doctor and also from new doctors bringing on some new patients.

Jack Gorman

Shane, I’m sorry, I think you mentioned early on in your comments that the target list had been increased by 20%, is that the performance over the quarter or is it the target performance going forward?

Shane Cooke

It’s the number of doctors were increased 20% from 1,500 to 1,800.

Jack Gorman

So it was a historical thing. That’s great.

Kelly Davis

Jack, as I indicated, I think that the incremental patient adds in the U.S. is deeper penetration by existing doctors is the primary driver. And that makes sense and as logical as these clinics get set up everybody gets educated, they have the TOUCH program, they have all of the information. You get a few patients through the system, and then they deepen their penetration. And that’s the strategy with Biogen that we’re doing, which is to get more doctors of the 2,500 involved. After they get involved there’s a higher success rate as far as deepening and broadening the penetration within each practice.

Jack Gorman

That’s great. Thanks, Kelly.

Operator

Thank you. At this time there are no further questions. At this time I would like to turn the conference over to Mr. Burns.

Chris Burns

Thanks, everyone, for joining us today for the call. The replay numbers are 800-633-8284, or 1-402-977-9140. The reservation code is 21342264. The replay will be available for 24 hours, and the Webcast will be available on our Web site for 90 days. Thank you.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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