Elan Q3 2007 Earnings Call Transcript

| About: Elan Corporation, (ELN)

Elan Corporation, plc (NYSE:ELN)

Q3 2007 Earnings Call

October 25, 2007 8:30 am ET

Executives

Chris Burns - IR

Kelly Martin - President and CEO

Shane Cooke - EVP and CFO

Lars Ekman - EVP of R&D

Analysts

Jack Gorman - Davy

Ian Hunter - GoodbodyStockbrokers

Orla Hartford - NCB Stockbrokers

Corey Davis - NatixisBleichroeder

Bill Tanner - Leerink Swann

Rich Silver - Lehman Brothers

Walter Branson - Regiment Capital

Ian Anderson - Cowen &Company

Operator

Ladies and gentlemen, thank youfor standing by. Welcome to the Elan Pharmaceutical Corporation Third Quarter2007 Financial Results Conference Call. During the presentation, allparticipants will be in a listen-only mode. Afterwards, we will conduct aquestion-and-answer session. (Operator Instructions). As a reminder, thisconference is being recorded, Thursday, October 25th. Your speaker for today isChris Burns, Investor Relations.

I will now like to turn theconference over to Chris Burns. Please go ahead, sir.

Chris Burns

Hello, everyone. Welcome toElan’s third quarter 2007 financial results call. I hope you’ve had a chance toreview our press release. If not, we encourage you to go to our website atwww.elan.com, where you'll find it.

Joining me on today's call willbe President and CEO, Kelly Martin; Executive Vice President and CFO, ShaneCooke; and Executive Vice President of Research and Development, Dr. Lars Ekmanwho is joining us from Europe. Today, we’ll take you through our financialresults and provide an R&D and business update.

Before we begin with Kelly’sremarks, I’ll review our Safe Harbor statement. Let me remind you that today’scall will contain forward-looking statements about Elan’s financial condition,results of operations, business prospects, and products and research. Theseforward-looking statements involve substantial risks and uncertainties thatcould cause actual results to differ materially from those described orprojected. A list of these risks and uncertainties is included in our thirdquarter financial results' press release which was issued this morning and inour 2006 annual report on Form 20-F and our Form 6-K filed with or furnished towith the Securities and Exchange Commission.

Elan assumes no obligation toupdate any forward-looking statements, whether as a result of new information,future events, or otherwise. In addition, today’s conference call webcast willinclude certain financial measures such as EBITDA; Earnings Before Interest,Taxes, Depreciation, and Amortization; and adjusted EBITDA, EBITDA plus orminus share-based compensation, net gains or losses on divestment businesses,other net gains and charges, net investment gains or losses and net charges on debtretirement. These financial measures are non-GAAP financial measures underSecurities and Exchange Commission rules. A reconciliation of these non-GAAPfinancial measures and most directly comparable GAAP measures are included intoday’s press release.

Now, I’ll turn the call over toKelly Martin.

Kelly Martin

Thank you, Chris, and weappreciate everybody joining us today. On behalf of Kyran McLaughlin andmyself, the rest of management team and the rest of the Board, we would like toshare with you the results and some comments from our last quarter. I’ll make afew comments before I turn things over to Shane Cooke, who is also joining meon this call, our CFO. And Dr. Lars Ekman, the President of R&D is also onthe call and he will make some comments after Shane.

Now before turning it over toShane, I’ll just like to go through a number of things. With regards to thispast quarter, I believe we have demonstrated the continued execution and havedelivered some tangible results in three key areas. Broadly, financially, ourrevenue was up over 40%. Our operating expenses were down 3%. The net loss wasreduced by 25% and as you’ll hear from Shane, the adjusted EBITDA was reducedby over 65%.

In Tysabri, we continue to haveenormous confidence in Tysabri in MS as well as further indications GI,oncology and perhaps others down the road. We continue to work very diligentlywith our partner Biogen on maximizing the value of this asset as we moveforward in its evolution. And lastly, with regards to Tysabri, based on itsefficacy, we believe there is very significant continued upside in the MSindication within the US, Europe and rest of the world markets.

The third area of progress overthe third quarter is our continued focus and advancement in the Alzheimer’sspace with regard to clinical activity. We continue to make progress across theBoard. With our partner Transition Therapeutics and the compound ELND-005, wehave announced that we will be starting our initial Phase II trial sometimeover the next few months.

In immunotherapy with our partnerWyeth, we continue to broaden the number of programs in immunotherapy, deepenour knowledge and accelerate their advancements both individually andcollectively. Importantly, AAB-001, is the lead program in that portfolio ofimmunotherapeutic activity, Dr. Ekman will provide a very specific update onthis clinical program during his remarks.

With that, I am going to turn itto our Chief Financial Officer, Shane Cooke and he will walk you through thequarter’s results in our financial arena. Shane?

Shane Cooke

Thanks Kelly and good morning andgood afternoon to everybody. My prepared remarks will focus on the overallresults for the quarter, together with an update on the performance of Tysabriand our expectations for the remainder of 2007.

Before going into a more detailedpresentation, I would like to firstly highlight four key aspects of thisquarter's financial results. One, we continue to see an improvement inoperating margins with revenues increasing at a much faster space thanoperating costs, which results in a 25% reduction in net losses and a 66%reduction in adjusted EBITDA losses.

Two, we have passed an importantmilestone with Tysabri, and with global in-market sales for the quarterapproaching a $100 million and over 16,000 patients on therapy, we expectTysabri to be profitable in the fourth quarter of 2007.

Three, based on what we have seento-date, we and Biogen Idec are confident that a 100,000 patients will be onTysabri by the end of 2010.

And four, overall we remaincomfortable with previous guidance for 2007. Although we are optimistic that wewill better our previous target of reporting adjusted EBITDA losses of about$50 million for the full year of 2007.

So, as we have done in the past,we set as in Appendix I and Appendix II to the press release, an analysis ofour results between Tysabri and the rest of the business. These Appendices alsoprovide an analysis of adjusted EBITDA losses, which I will refer to during thecourse of my presentation. The metrics I will present in relation to Tysabriare as of the end of September 2007 and/or the same as was presented by BiogenIdec with their results earlier in this week.

So turning, firstly to theoverall results for the quarter. The net loss for the quarter as I mentioneddecreased by 25% to $87.4 million from a $117 million in the third quarter of2006. The improvement in underlying performance is reflected in a 66% reductionin adjusted EBITDA losses to $14.1 million, continuing the trend of the lastcouple of quarters. This improved performance was driven by a 43% increase inrevenues, largely due to the acceleration of Tysabri revenues and improved operatingmargins, as total operating expenses increase by only 13%.

The overall gross margin fellfrom 62% in the third quarter 2006 to 52% in the third quarter of 2007,reflecting the increasing impact of sales of Tysabri, which have a lower grossmargin due to the collaboration agreement with Biogen Idec. Excluding Tysabri,the gross margin was 63% in Q3 2007 consistent with the 63% we reported in Q32006 and previous guidance of 60% to 65%.

We were also pleased that thereduction in SG&A costs of 10%, more than offset the anticipated increaseR&D spend associated with advancing our Alzheimer's programs. Revenuegrowth, as I mentioned, was driven by another solid performance from Tysabri,which contributed $63.5 million to our reported sales.

Revenue from Maxipime fell by 27%,as a result of the previously reported approval of a generic competitor in June2007. Partially offset by supply shortages in 2006. We expect that revenuesfrom Maxipime will continue to be impacted negatively by generic competition.The loss of revenues from Maxipime in this quarter was largely offset by thegrowth of Azactam and another strong performance from the drug technologybusiness with product revenue growing by 12% to $65.1 million.

Azactam, which lost its patentexclusivity in October 2005 and its future sales are expected to be negativelyimpacted by generic competition. Although to-date no generic form has beenapproved.

I now would like to make a fewcomments on Tysabri, which are based on Appendix 1 of the press release. Globalin-market sales in the quarter were $93.3 million approaching the $100 millionmark for the first time and an increase of 30% over that reported in the secondquarter 2007, reflecting a solid performance.

As I've explained before, the waythe collaboration works with Biogen Idec who manufactured Tysabri is different between the US and the restof the world. In the USmarket we purchase the product from Biogen Idec and we are responsiblefor its distribution. Consequently, we include all the net revenues from Tysabri sales in the US in productrevenue, which amounted to $58.5 million in the quarter. We buy products from BiogenIdec at a price, which includes the cost of manufacturing, plus Biogen Idecshare of the gross profit, and this is included in cost of sales together withroyalties on worldwide sales.

In the rest of world, Biogen Idecis responsible for distribution and we receive a royalty equivalent to ourshare of the net profit on sales in the rest of the world. This royalty isincluded in product revenue. So in Q3 2007, we recorded $5 million of Tysabri rest of the world sales reflectingour $300,000 share of the net loss in this region, based on net sales of $34.8million in the rest of the world. This loss was more than offset by thereimbursement of Elan's directlyincurred costs of $5.3 million.

Our share of the R&D costs associated with Tysabri and the US SG&A costs areincluded in operating expenses in our income statement and amounted to $28.8million in Q3 2007, an increase of 8% over the $26.6 million incurred in Q32006.

We recorded EBITDA losses associated with Tysabri of $7.1 million in Q32007, a more than 75% reduction from the $28.7 million in EBITDA lossesrecorded in Q3 2006. This reduction in EBITDA losses results from the increasedgross profits driven by the growth in Tysabri revenues and the ongoing andcareful management of associated costs.

As we recently reported at theend of September, there were approximately 17,000 patients on Tysabri globally,comprising approximately 1,000 in clinical trials, 10,500 in the US and 5,500 inthe rest of the world.

Since we last reported in themiddle of July, we have seen the number of net new patients on therapy in theUS accelerate, while the take of in EU has been has been affected by the Augustsummer holidays. We are seeing the average number of patients enrolling in theTOUCH program in US increasing by about 25% over last quarter, and we view thisas very positive trend and a leading indicator.

As we previously guided, we needabout 15,000 patients on therapy in MS to cover the plant aggregate annualcommercial spend on Tysabri and MS of about $300 million, the spent which we share50-50 with Biogen Idec.

As we guided last quarter, we aredelighted to report that we passed this important milestone during thisquarter. As a result, and less than 18 months after launch, we expect Tysabrito be profitable overall in the fourth quarter. There are not many drugs thatcan claim to get to profitability in such a short timeframe and again thisdemonstrates the operating leverage we have at Elan, as sales of Tysabriaccelerate.

In the US, over 2,100 doctors haveenrolled patients in the TOUCH program, with about 10,500 patients on therapy.94 out of top 100 MS doctors have prescribed Tysabri and we expect to continueto see the number of patients accelerate, as more-and-more doctors prescribeTysabri and those that are already prescribing bring more of their patients onto therapy, as they see first hand, the profound efficacy of this important newtreatment.

In the rest of the world market,there are about 5,500 patients on therapy, predominantly in the EU. At the endof August, Tysabri had achieved market shares of 4.4% in Germany, 5% in the Nordic countries, 6% in Ireland and Greeceand 2% in France.

Germany,France, Italy and Greece are providing the majorityof new patients being dose with Tysabri in the rest of the world setting. Andwe expect momentum to continue to build, as we receive widespread reimbursementin the UK, gain traction inother EU countries, especially France,and make further progress in gaining approval and reimbursement in othercountries.

So overall, we are pleased withthe solid progress we and Biogen are making with Tysabri and we're optimisticwe will reach our target of getting to a 100,000 patients on-therapy by the endof 2010.

In order to get to this target of100,000 we will need to see about one out of every five MS patients who areeither on the ABC therapies or on quick treatment starting on Tysabri.

We believe this is a veryreasonable and some would say modest target given that Tysabri has demonstratedprofound efficacy and clinical trials in MS with the two-third reduction inrelapses. Our potential approval in the Crohn's indication, would alsocontribute towards achieving this target.

Finally, I would like to reviewour expectations for the balance of 2007. So, we continue to expect revenuesexcluding Tysabri to approach if not exceed $500 million for the full year of2007. Other consequence of the approval of the generic competitor to Maxipimein June of 2007 and in anticipation of the approval of the generic competitorto Azactam, we adjusted our commercial infrastructure and reduced our relatedsales and marketing expenses.

As we reported last quarter, weexpect that these adjustments would result in a reduction in annual cash costof about $40 million. We are on target to achieve these reductions whichtogether would reduce non-cash amortization cost of $60 million with theSG&A cost reduced by about $100 million as we go into 2008. In this regard,and as we signaled last quarter, we incurred a charge of $14.3 million inrelation to these adjustments, and as a result of the consolidation of our westcoast activities, which will result in the closure of the San Diego facilityand the expansion of our facilities in South San Francisco.

So, now withstanding the earlierthan expected entry of a generic competitor to Maxipime, and as a result of thecontinued strong performance from the rest of the business, and the actions wetaken to reduce cost, we're optimistic that adjusted EBITDA losses for 2007will be less than the $50 million we guided last quarter.

I'd now like to hand the callover to Lars, who will give you an update on our R&D pipeline.

Lars Ekman

Thank you, Shane. And goodmorning or good afternoon, to everyone. I’d like to spend the next few minutesdiscussing the following topics. First, I'll you an update in Crohn’s diseasefollowed by an update in MS, and finally, making some comments on othertherapeutics opportunities for Tysabri. I'll then turn to some brief commentson our additional R&D programs. Thirdly, I'll then cover our Alzheimerprograms in clinical development ELND-005 and our AIP programs. And very last,I will conclude with some specific comments on Bapineuzumab or AAB-001, and itsprogress to-date.

So let me start with Tysabri andChron's disease. At the end of July, the joint committee of GI Drugs Advisoryand the Drug Safety Committee recommended approval of Tysabri for patients withmoderate-to-severe Chron's disease who have failed or cannot tolerate availabletherapies. In such meeting, we have been working with the FDA to addressconcerns noted by the Committee, of which, the FDA informed Elan and Biogenthat the Agency will expand its regulatory, with UK, as it required additionaltime to review the proposed Tysabri risk math for Crohn’s disease.

Under the revised timeline, thecompanies anticipate FDA action on or before the 13th of January next year.Earlier this month, new data on Tysabri for Crohn’s patients was presented atthe American College of Gastroenterology in Philadelphia and further aspectswill be presented at the European GI Week in Paris later this month.

An important highlight from theseaspects suggests that Tysabri is effective in inducing response and sustainingremission in Crohn’s patients in the absence of concomitant immunosuppressantsand corticosteroid therapy.

In addition, the analysis alsosuggests that Tysabri is effective in inducing response and maintainingremission in Crohn’s patients who failed prior anti-TNF therapy and did notreceive concomitant immunosuppressants.

So, let's then turn to Tysabri inMS. As previously mentioned, at the end of September, there were approximately17,000 commercial and clinical patients being treated with Tysabri in MSworldwide. It is important to have this in context as to update the safetymetrics we shared at ECTRIMS in Prague earlier this month.

As of mid September, there havebeen no new reports or confirmed cases of PML, with approximately 26,000patients being exposed in total and over 2,000 patients on therapy for longerthan 1 year.

In summary, the safety datato-date continues to support the favorable benefit risk profile for Tysabri.During ECTRIMS, new analysis of the Phase III AFFIRM study was presented, whichdemonstrated that the proportion of disease-free patients over two years wassignificantly higher in the Tysabri treated group compared with the placebogroup.

Additional results from aseparate plasma exchange study, even know as the PLEX study was presented. Thedata from this study suggests that plasma exchange may be an effective means ofaccelerating the removal of Tysabri from blood serum. This is important sincethe literature has suggested that early diagnosis and rapid removal of theimmune modulator are key denominators in the therapeutic intervention of drug-inducedPML.

Plasma exchange is one of severalresearch efforts that the companies have underway to learn more about thepotential intervention or treatment of drug-induced PML.

As mentioned previously, Elan andBiogen Idec are currently finalizing the plans for additional indications forTysabri. In particular, we anticipate being in the clinic to evaluate Tysabriin the oncology therapeutic space during the first half of '08.

Before reviewing our Alzheimer’sprogram, currently in the clinic, I would like to mention that we continue tomake progress in our non-partnered programs, such as the small molecules for alpha-4program, the gamma secretase program and several others. We would providespecific program updates on these as appropriate.

Then finally, let me turn to ourAlzheimer programs currently in the clinic. I will start with the progress ofthe ELND-005, our oral small molecule for AD, which is in Phase I incollaboration with Transition Therapeutics. This molecule has been shown to beeffective in breaking down beta-amyloid fibrils. During the quarter, we havecompleted the Phase I program and the drug has proven to be safe and welltolerated.

The data showed that it ispossible to achieve drug concentrations in the CSF similar to concentrationsthat have been shown to break down beta-amyloid in preclinical trials. The nextsteps will be the filing of an application for Phase II studies. We anticipatethe starting of the Phase II trials by the end of 2007 or early 2008.

Next, in line are our immunotherapeuticprograms with Wyeth. Currently, we have three distinct compounds in clinicaltrials. These programs are all on track with the milestones that I had sharedduring our second quarter earnings calls.

To summarize, ACC-001, our activeimmunotherapeutic approach, which includes 250 patients, is on track in theongoing Phase II trial. In the tested approach, subcutaneous formulation of Bapineuzumabknown as AAB-001 is progressing through the Phase I trial. And we anticipatestarting Phase II in the first half of 2008. This subcutaneous formulation ofBapineuzumab will greatly increase the market access opportunity and providefor an expanded commercial opportunity.

Lastly I will turn to the IVformulation of Bapineuzumab or AAB-001, our lead immunotherapeutic candidate.Phase II trial is ongoing, with the final data anticipated in mid 2008. Inparallel we are conducting a smaller Phase II imaging study in the EU as wellas a Phase I trial in Japan. I would remind everyone that this Phase II trial isblinded and will remain so until its completion in 2008.

And finally I'll provide a briefupdate on the clinical and regulatory status of the impending Phase III trialfor Bapineuzumab. In the regulatory arena most of the FDA and the CHMP haveagreed that the companies can proceed to Phase III. During the late Septembermeeting the FDA agreed in principle for a proposed Phase III trial design.

As part of this discussion theFDA had the opportunity to review data from AN-1792, the Phase I data and the interimdata from the current and ongoing Phase II trial. All of which were relevantfor the design of Phase III trial.

In the EU, we recently receivedan advice letter from the CHMP where they agreed to proceeding to Phase IIIwith minor adjustments.

As part of our continuingclinical progress, we have scheduled a number of investigator meetings duringthe coming weeks. During these meetings, we will be sharing the Phase IIIdesign and study protocols. Characteristics of the Phase III trial designinclude the following.

More separate pivotal placebocontrol studies with a total of approximately 4,000 patients will beimplemented across two-third populations with mild to moderate Alzheimer'sdisease. Specifically, there will be two global trials in APOE carriers andthere will be two global trials in APOE non-carriers. These trials will be of18 months duration. We will have a single dose in APOE carriers and we willcompare it with the same dose and multiple higher doses in APOE non-carriers.Our objective is to dose the first patient in North America by the end of this year.

In conclusion, we and Wyethbelieve that this Phase III program optimizes our opportunity to develop a drugthat would slow cognitive and functional deterioration in Alzheimer patients.

And with that, I would like toturn over the call to Chris for Q&A

Chris Burns

Thanks, Lars. Operator, if youcould please remind the callers of the questioning procedures.

Question-and-Answer Session

Operator

(Operator Instructions). Thefirst question comes from the line of Jack Gorman with Davy.

Jack Gorman - Davy

I just had a couple of questionson the final piece of information on the Phase 3 design that you shared withus, Lars, I suppose in the first instance my first question would be is there aplan or it's in the protocol to include interim analyses over the course of the18 months of data? And secondly, is there any update that we can have from youon the filing and the manufacturing strategy that you have for Bapineuzumab andthe other AD programs?

Lars Ekman

Okay. The first question isrelated to an interim look. It is premature at this point to give informationof that since we have not received a specific feedback from all the regulatoryagencies at this point. Once we have that information that will becomeavailable.

Jack Gorman - Davy

But when do you expect those?

Lars Ekman

I don't want to speculate in whenand how that will happen, that's part of the dialogue that is ongoing.

Jack Gorman - Davy

Okay.

Lars Ekman

And the next question was relatedto our manufacturing capability?

Jack Gorman - Davy

Yeah, yes.

Lars Ekman

Perhaps I can turn it to youKelly for that.

Kelly Martin

Yes. Jack the Wyeth and Elanteams have been working extremely hard on the manufacturing topic over the lastsix to nine months and I would characterize where we are today as I think thatwe collectively have an extremely good manufacturing plan. We believe that wehave the manufacturing topic well in hand; Wyeth has done some extremely goodwork in the biological area. And we feel very good collectively between Wyethand ourselves where we are with manufacturing plan, manufacturing preparationand overall supply capability as we look out into various scenarios.

Jack Gorman - Davy

And Kelly, I know you mentionedpreviously that one of your intentions was to have your own manufacturingcapability at some stage, is that still a fair comment?

Kelly Martin

We are in the process offinalizing things with Wyeth. I think this capability is within both companiesthat we can leverage, which we will do. And given the magnitude and theimportance of this product to both companies and obviously the magnitude of themarket, I think its fair to say that we will both be participating in themanufacturing processes and those details will be released as we reachcompletion on the manufacturing plans. But we believe that it's important forus to be involved with this, given the partnership with Wyeth and given themagnitude of the opportunity and the magnitude of the business.

Jack Gorman - Davy

Yeah, great. And maybe if I mayjust ones more follow on, just for Shane. When would you expect Shane to giveus an outliner or view on the R&D spend implications of these program?

Shane Cooke

And I think what we will do is asnormal we'll give guidance for 2008 when we report the fourth quarter, whichwill be I suppose during the end of January or February of next year.

Jack Gorman - Davy

All right. That’s great. Guysthanks so much.

Operator

Your next question comes from theline of Ian Hunter with Goodbody Stockbrokers.

Ian Hunter - Goodbody Stockbrokers

Good afternoon, gentlemen. I wasjust wondering Lars, whether you could just clarify for us the timeline for thePhase II data for the AAB-001? I know why foreseeing that the data will bepublicly available in the second half of the year, is that what you're sayingthat the actual trials will be finished in the first half and then dataavailable in the second-half?

Lars Ekman

First of all, no change hashappened since the company is communicated three months ago. So the program isabsolutely on-track. We have used the language that the data will be availableby mid-year, if that is plus-minus couple of weeks around mid year, I thinkit's too early to say and because we have to address which internationalscientific meeting we would present the data at, and therefore, there is aslight fluctuation there. But in terms of the program, the program is on-track.And you should assume and look forward to some time mid year.

Ian Hunter - Goodbody Stockbrokers

Okay, thanks very much on that.And then maybe on Tysabri, I was just wondering, I'm trying to reconcile thetest of the Tysabri patient numbers with the reported revenue and I'm justwondering, first of all, have there been a steady ramp up of patients in boththe US and EU over the three month period of the third quarter or has therebeen any lumpiness in it? And has there been any level of discount that you arehaving to apply in the USand EU?

Kelly Martin

Ian, it has been a fairly steadyincrease in patients additions during the quarter, there is no discounting thatwe are doing either in the USor in Europe. When you are doing yourcalculations, the numbers that we gave for patients was as of mid October, so Idon’t know what’s messing your math up, you are taking in the middle of July inthe end of September we need to take the end of June.

Ian Hunter - Goodbody Stockbrokers

That’s fine okay, but within mymodel, you are ahead on the US but slightly behind in Europe and I am justwondering, what the driver was may be my numbers are wrong here but may be wasEurope slightly behind the expectations, and if so, what was the driver onthat?

Shane Cooke

If you look at the patientadditions, the patients additions in the US accelerated over the previousquarter, and as I said, while we have seen is that the number of touch forums,which are a good indicator of future performance are up about 25% over what itwould have been in last quarter. In Europe, the number of patient additions isdown a little bit from last quarter and we would put that down to summer monthsin Europe, where things tend to slow downparticularly in August.

Ian Hunter - Goodbody Stockbrokers

Okay. Thanks very much.

Operator

Your next question comes from theline of Orla Hartford with NCB.

Orla Hartford - NCB Stockbrokers

Thank you very much. And just aquestion for Lars on PLEX study, and just Lars, what are the next steps toestablishing where the plasma exchange can be used in those setting, in courseof the time may be there to get to a working protocol?

Lars Ekman

I can’t tell you that. The reportthat was presented was an interim report of an ongoing trial. I think, it wouldbe wrong to speculate exactly when the trial is finished. I think once thetrial is finished, based on that experience we can then design a treatmentproposal, and when that is over 5 or 6 months, I cannot speculate. But it’s inthat ballpark.

Kelly Martin

If I can just add Orla it'sKelly, the PLEX study is due to it reach completion towards the end of thisyear and the early part of next year and as Lars said, once that’s completedand we together with Biogen have all the patient data. We would design nextsteps from that, but we need obviously this first step to be completed.

Orla Hartford - NCB Stockbrokers

Okay, great. And just the latestsafety data, from such program, data shows there is no new case of the PML. Butwere there any other cases of other serious opportunistic infection?

Lars Ekman

I think that there were two casesthat were reported of other opportunistic infections, all of which returned tonormality. That was at an incidence rate that was similar to what we have seenpreviously.

Orla Hartford - NCB Stockbrokers

Okay, great. Thanks very much.

Operator

Your next question comes from theline of Corey Davis with Natixis

Corey Davis - Natixis Bleichroeder

Hi, thanks very much and largethanks for all the clarification on the Phase III design. First to be clear,you said you are going to use one low dose in APOE patients and did you say twodoses in non-APOE patients or multiple doses?

Lars Ekman

I said multiple doses in APOEnon-carriers.

Corey Davis - Natixis Bleichroeder

Right. And can you go furtherthat and say 2 or 3 or 4?

Lars Ekman

We will have an investigatormeeting within the next couple of weeks and I think it is fair to theinvestigators that they should be the ones to learn various specifics. I thinkwe want to be forthcoming to the financial community and gave broad strokes atthis point. And then, while we have had the dialogue with investigators, wewill come back to you with the details. I think that's sort of a current [wesee to them]?

Corey Davis - Natixis Bleichroeder

Fair enough. And so from that,can we conclude that APOE patients are better responders to the drug or thatthey are more sensitive to vasogenic edema?

Lars Ekman

I think it's important becausethis will be an important theme at the investigator meeting and because youmentioned vasogenic edema, I would like to put that in perspective and then Iwill answer your question.

Vasogenic edema is, as I've saidmany times before, it's a largely asymptomatic and transient MRI finding. Wehave learned that it is more abundant for cares. That has influenced the designof the trial, so that we can minimize this event. We do not know yet if that issort of an adverse event or if it's an event that we're actually striving for,but we have at this point say let's try to minimize that event, and thereforewe would only do one dose in those patients. In the APOE non-carriers, we willdo the same dose and then for other doses.

Corey Davis - Natixis Bleichroeder

Got it. And can you remind may bethe audience to what percent of the Alzheimer's population are APOE carriers?

Lars Ekman

60% of the Alzheimer patients arenon-carriers and 40% are carriers.

Corey Davis - Natixis Bleichroeder

Okay.

Lars Ekman

However, I would also like toremind all of us that we have the objective to develop a drug that fits allpatients. The ability to use pharmacogenomics to identify specific patientsgroups is there to optimize the value of the drug and to optimize and find whattherapy is best for patients with different genotypes within the Alzheimer diseaseas a whole. This is to my knowledge one of the first times where in a study ofthis magnitude companies have prospectively defined specific genotypes in orderto optimize the therapy

Corey Davis - Natixis Bleichroeder

Okay. And can we assume thatthere is placebo arm in each of those four studies?

Lars Ekman

Absolutely. In each of the fourstudies there is very well defined placebo group. And in each of the trial is apivotal standalone trial by itself.

Corey Davis - Natixis Bleichroeder

Okay. And last question more onTysabri and I don't know if it's for Kelly or Shane. I am hoping you coulddescribe how your fair market value would be arrived at for Tysabri in theprocess for such in the event that, you do want to regain Tysabri rights andthe Biogen is sold and if the other party comes back with an outrageous priceand you really do want it, is there some sort of arbitration process fordetermining a more realistic value?

Shane Cooke

I think Corey it’s a bit early inthe process. Obviously Biogen is reviewing its strategic alternatives. There isas everybody knows a change and control provision that's in that, that willcome into effect in the event of a change of a control occurring, which isn'tthe case yet. And if that does occur we have the options of buying the other50% of Tysabri, selling the other 50%retaining the collaboration as it is. Our R&D we may look to try and amendthis. And its far to early for us to give any view as to where that would goand there are provisions in the agreement that are designed to try and makesure that any price that is arrived at either fair price and from theperspective of both parties. And that's all, I can say on that point.

Corey Davis - Natixis Bleichroeder

That's fine. Is itfair to say to that you need Biogen to manufacture the product and thatyou have no capability yourself in the event whatever happened?

Kelly Martin

Corey, its Kelly, Ithink Shane said there is lots of detail in there. It's all contingent uponagain in respecting the process that Biogen has announced. It doesn't helpanybody to speculate but there are provisions about ongoing supply obligationsin the event that the asset changes hands or changes structure.

Corey Davis - Natixis Bleichroeder

Yeah, okay. Thank a lot. That's all I had, guys.

Operator

Your next question comes from the line of Bill Tanner with LeerinkSwann

Bill Tanner - LeerinkSwann

Thanks for taking the questions. Lars, a couple of questionsfor you on Bapineuzumab, I think you did mention that the FDA had looked at thePhase 2 data, and it seems I guess or [rather than] that would have but I don'tknow if you can provide any color, as to whether you are focused on or just thewhole data in general?

Lars Ekman

I cannot provide any color on that. As you know, the trialis ongoing and giving you color on that would sort of un-blind the trial. Theyhave seen all the data relating to safety of the drug, related to the efficacyof the drug, so we have shared all the data from this, from that trial for thePhase 1 trial and based on the totality of that and our experience was [79 for2] we have defined the trial and we have agreed with the trial design with theFDA.

Bill Tanner - LeerinkSwann

Okay. And then just on the dosing, I understand the APOEcarrier versus non-carrier sort of understand the rest now, but was the dosingthen really arrived at more or the differential dosing arrived at more from asafety perspective trying to avoid the vasogenic edema, I mean I am guessingwhat is known then about the relative efficacy Bapineuzumab and the twodifferent types of patients and I don't know if you have disclosed it or and ifyou could remind us on the ongoing Phase 2, the percentage of APOE carriers?

Lars Ekman

We have not disclosed any efficacy in these two genotypes,that's obviously when it comes to that, it will fall off, as we know that's[comparative] the data and it would then be disclosed. And we know that thereis an abundance of vasogenic edema in the APOE e4 carriers that although thetotality of the patients is low, the relative percentage is higher in the APOEe4 carriers and by having a lower dose in their patient category we cansignificantly reduce this event. That had an impact on this line.

Bill Tanner - LeerinkSwann

Okay, and then so then obviously the presumption is that youwould not be sparing much efficacy for going with a lower doze for bettersafety profile I guess.

Lars Ekman

As soon as we get…

Kelly Martin

I just want to remind people that Phase 2 data is winded andit's not possible for us to answer much more. What we will try to do is giveyou all a framework for the Phase 3 design as Lars said the investigation weare taking through, through in more details and clearly there we had a uniquesituation, where with the interim look of Phase 2, there was very specificinsight into all of these questions, that was then put into the design of Phase3. Now optimally we need to wait for the Phase 2 to complete itself and we lookat the data. So, the Phase 3 is designed to give ourselves the maximum opportunityto be successful.

Bill Tanner - LeerinkSwann

Okay, fair enough. And maybe if I can just ask one last onTysabri on Crohn's maybe Kelly, just sort of strategically I mean, I guessthere is [a canter] would think that the drug is doing -- flipping along prettywell in MS and that, would you potentially then risk that franchise obviouslyif you were to expand and into Crohn's and I think Biogen has suggested that in2010 that 100,000 is 80% to 90% MS. So, just sort of thinking about thestrategic, the strategy of going into Crohn's as to whether or not PML doesprop up good under cut, with the progress you are making in MS?

Kelly Martin

That's a good question, it's a strategic question. It's onethat we and Biogen spent time on. There is two ways to look at Tysabri, givenits efficacy. It clearly should be overtime predominant MS therapy, given thecurrent alternatives, that's sort of one way to think about it. The other wayto think about it is in addition to that and clearly risk reward, investments return,and time lines are all part of those discussions. It's an asset that will haveapplication in the GI space, Crohn's and ulcerative colitis and it's an assetthat we strongly believe collectively between Biogen and Elan, that we'll haveapplications in a number of oncology targets.

So if you think about the asset in a short-term a conclusioncould be drawn that MS is 90% plus of the value, don't deviate from that. Ifyou think about it slightly intermediate to longer term, it's an asset with adifferent mechanics of action, its approved now in one indication presumablywill be improved in another indication over the next couple of months. And ifyou think about long-term value and long-term growth, it’s an asset that webelieve again collectively between the two companies that it has very, verysignificant long-term upside, so it’s not a yes or no answer, or a black orwhite, it's a discussion about how you balance those different pieces of thepuzzle. I would say that both companies are comfortable in moving ahead inCrohn's not just because Crohn's is the end game but Crohn's is a continuationof the validation of the assets for future indications down the road.

Bill Tanner - LeerinkSwann

Okay, thank you.

Operator

Your next question comes from the line of Rich Silver withLehman Brothers.

Rich Silver - LehmanBrothers

Good morning. Just on Bapineuzumab again and the Phase 3design, you'd mentioned that premature to be discussing whether an interimanalysis would be included and that you said that you're still in the processof getting specific feedback from the regulatory agencies, does that also meanthat the start timeframe is also yet to be determined?

Lars Ekman

No. The start time is fixed and we are on time to dose thefirst patient before year-end that has not changed. I would say that until wehave all the small details with all authorities, we should not disclose thesedetails. I didn't say that we have this topic with all authorities and I thinkat this point we would rather not disclose it.

Rich Silver - LehmanBrothers

And how Lars, how long do you think it will be before youhave the last patient enrolled?

Lars Ekman

We have not yet discussed the timelines. We have toinvestigate this. What happens in the process is that first you have to presentthe outline of the trial with investigators. We have all the trial sites, ofcourse we have our own assumptions and we then have to validate thoseassumptions discussing with investigators, can they keep this certain patientflow et cetera, et cetera. So, giving you timelines before we would have thefirst investigator meeting would be unwise. We hope and we think we can recruitfast for the following reason. One is that there is no big Phase 3 trialongoing that is competing with this. And we have received very significantinterest in the program, so both Elan and Wyeth has prepared sites both inNorth America and the US,so we are well prepared to maximize the success of this.

Rich Silver - LehmanBrothers

And the timeframe for the trial, the entire duration of thetreatment is that set-in-stone of 18 months?

Lars Ekman

18 months. Yes, it's 18 months on therapy.

Rich Silver - LehmanBrothers

Okay, with no possibility of extension or perhaps the earlystop at just part of it, the design?

Lars Ekman

That question is obviously related to interim look. I didnot envision that even if there would be an interim look that we would stop thetrial. 18 months is what you need for this kind of trial. The FDA has been veryclear and so have the European authorities.

Rich Silver - LehmanBrothers

Okay. Thanks very much.

Operator

Our next question comes from the line of Walter Branson withRegiment Capital.

Walter Branson -Regiment Capital

Thanks. A couple of things. With regards to the change ofcontrol provisions with respect to the potential change of control of Biogen,you said that you have the right to sell Tysabri, your 50% interest in it.Would that reflect sale only to Biogen or its buyer or could you potentiallyalso sell to a third party?

Kelly Martin

And I think as I said in the event of a change of controlthere is a mechanism within the agreement that we have Biogen Idec that givesus the option to buy or sell or continue the collaboration with Biogen Idec.

Walter Branson - RegimentCapital

Okay. And my second question is could you give us anoverview of the potential competition for Tysabri that is yet to be approvedstatus of clinical trials et cetera, particularly with respect to Rituxan?

Kelly Martin

Lars, you want to outline now, just a couple of points oneach. But I wouldn't go into too much.

Lars Ekman

No. They have to rely on theinformation that is provided by various competitors. I would first look at theFTY720 from Novartis, which is in Phase III, which they've claimed will befinished at the end of 2009, beginning of 2010. Campath is also in Phase IIIit's behind FTY720. My understanding is that Genentech has not started a PhaseIII trial with Rituxan and that they are contemplating to use the secondgeneration product document that rather than Rituxan, clearly, I can't give anymore transparency on that.

Kelly Martin

This is Kelly. Just a broadercomment on MS for what it's worth. If you think of a current MS marketplace,it's a $6 billion to $8 billion business. You've had roughly four majorcompetitors from product point of view in that space for the last decade andmore. I think it's logical to assume that as alternatives appear, Tysabri beingthe first that through the market battle if you will, we'll shift to a muchhigher efficacy plateau. And in that space, we believe overtime that theexisting market structure could change fundamentally and quite significantlywith multiple options. Tysabri clearly being the one that we're currently mostinterested in, if that's helpful.

Walter Branson -Regiment Capital

Yes it is. Thank you.

Operator

Our final question comes from theline of Ian Anderson with Cowen & Company

Ian Anderson - Cowen & Company

Hi, good morning. Thanks fortaking the question. Quick follow-up on the Bapineuzumab Phase III, will therebe, as there were in the Phase II MRI scans taken after each infusion. And werethe mix of the APOE positive and APOE negative patients be 50-50 in the trialdesigned or will it be more representative of the patient population at this40-60?

Lars Ekman

First concerning the MRI scans,these are all details that we will discuss with investigators. As I saidbefore, this is the way we are going do it. We would present the proposal tothem and then the details of how and when these MRI scans will be performed. Wewill then disclose the details in the protocol that will be published onclintrials.gov.

Ian Anderson - Cowen & Company

Okay.

Lars Ekman

The second question was, justremind me?

Ian Anderson - Cowen & Company

The patient mix of APOE positiveand APOE negative patients, is that going to be evenly split or is it going tobe the 40-60, as represents the patient population?

Lars Ekman

It's not going to be exactly50-50. But if you think about it in practical terms, the 60-40 is the generalpopulation. The experience suggest is that you have an over representation inclinical trials slightly of APOE patients, but I wouldn't focus on that. Ithink you should assume that we would get equal amount of information in bothgenotypes and our ambition is to learn as much as possible on both genotypes.

Ian Anderson - Cowen & Company

Okay. And then finally on theELND-005, would that Phase II trial also be an 18 month disease modificationtrial?

Lars Ekman

I don't think we have presentedthat Phase II trial. If we'll have a similar outline to the ongoing Phase II,but I don't think we have presented any details on that.

Ian Anderson - Cowen & Company

Okay. Thank you.

Lars Ekman

Yeah.

Kelly Martin

I think that wraps up our Q&Asession. I would like to thank everybody for their participation. I wouldreiterate since many of the questions focused on the Phase III design and weare in a quite unique situation where the Phase II is ongoing and its blinded avery small group of people from Wyeth and Elan had an interim look at the PhaseII, and obviously that opportunity allowed us to very, very specifically designa Phase III that as large indicator will be shared with investigators in thecoming weeks and we would hope to get first patient dosed in North Americatowards the end of this year or very early part of next year. And obviously,that's a very important step for us given that AAB-001 is the firstimmunotherapeutic program and what is an expanding and deepening portfolio inthat whole entire space. So, we look forward to more progress there.

We will continue to make themarket aware of things, as they evolve. We appreciate all of your interests andthoughts, and we will look forward to the next call after the year's end. Thankyou.

Chris Burns

Thanks very much operator. Thatconcludes our call today.

Operator

Thank you. Ladies and gentlementhat concludes today's conference call for today. We thank you for yourparticipation and ask that you please disconnect your line.

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