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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 - Goodbody Stockbrokers

Orla Hartford - NCB Stockbrokers

Corey Davis - Natixis Bleichroeder

Bill Tanner - Leerink Swann

Rich Silver - Lehman Brothers

Walter Branson - Regiment Capital

Ian Anderson - Cowen & Company

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Elan Pharmaceutical Corporation Third Quarter 2007 Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, October 25th. Your speaker for today is Chris Burns, Investor Relations.

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

Chris Burns

Hello, everyone. Welcome to Elan’s third quarter 2007 financial results call. I hope you’ve had a chance to review our press release. If not, we encourage you to go to our website at www.elan.com, where you'll 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 of Research and Development, Dr. Lars Ekman who is joining us from Europe. Today, we’ll take you through our financial results and provide an R&D and business update.

Before we begin with Kelly’s remarks, I’ll review our Safe Harbor statement. Let me remind you that today’s call will contain forward-looking statements about Elan’s financial condition, 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 third quarter financial results' press release which was issued this morning and in our 2006 annual report on Form 20-F and our Form 6-K filed with or furnished to with the Securities and Exchange Commission.

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 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 businesses, other net gains and charges, net investment gains or losses and net charges on debt retirement. These financial measures are non-GAAP financial measures under Securities and Exchange Commission rules. A reconciliation of these non-GAAP financial measures and most directly comparable GAAP measures are included in today’s press release.

Now, I’ll turn the call over to Kelly Martin.

Kelly Martin

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

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

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

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

In immunotherapy with our partner Wyeth, we continue to broaden the number of programs in immunotherapy, deepen our knowledge and accelerate their advancements both individually and collectively. Importantly, AAB-001, is the lead program in that portfolio of immunotherapeutic activity, Dr. Ekman will provide a very specific update on this clinical program during his remarks.

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

Shane Cooke

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

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

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

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

And four, overall we remain comfortable with previous guidance for 2007. Although we are optimistic that we will 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 of our results between Tysabri and the rest of the business. These Appendices also provide an analysis of adjusted EBITDA losses, which I will refer to during the course of my presentation. The metrics I will present in relation to Tysabri are as of the end of September 2007 and/or the same as was presented by Biogen Idec with their results earlier in this week.

So turning, firstly to the overall results for the quarter. The net loss for the quarter as I mentioned decreased by 25% to $87.4 million from a $117 million in the third quarter of 2006. The improvement in underlying performance is reflected in a 66% reduction in adjusted EBITDA losses to $14.1 million, continuing the trend of the last couple of quarters. This improved performance was driven by a 43% increase in revenues, largely due to the acceleration of Tysabri revenues and improved operating margins, as total operating expenses increase by only 13%.

The overall gross margin fell from 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 gross margin 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 Q3 2006 and previous guidance of 60% to 65%.

We were also pleased that the reduction in SG&A costs of 10%, more than offset the anticipated increase R&D spend associated with advancing our Alzheimer's programs. Revenue growth, 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 June 2007. Partially offset by supply shortages in 2006. We expect that revenues from Maxipime will continue to be impacted negatively by generic competition. The loss of revenues from Maxipime in this quarter was largely offset by the growth of Azactam and another strong performance from the drug technology business with product revenue growing by 12% to $65.1 million.

Azactam, which lost its patent exclusivity in October 2005 and its future sales are expected to be negatively impacted by generic competition. Although to-date no generic form has been approved.

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

As I've explained before, the way the collaboration works with Biogen Idec who manufactured Tysabri is different between the US and the rest of the world. In the US market we purchase the product from Biogen Idec and we are responsible for its distribution. Consequently, we include all the net revenues from Tysabri sales in the US in product revenue, which amounted to $58.5 million in the quarter. We buy products from Biogen Idec at a price, which includes the cost of manufacturing, plus Biogen Idec share of the gross profit, and this is included in cost of sales together with royalties on worldwide sales.

In the rest of 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. So in Q3 2007, we recorded $5 million of Tysabri rest of the world sales reflecting our $300,000 share of the net loss in this region, based on net sales of $34.8 million in the rest of the world. This loss was more than offset by the reimbursement of Elan's directly incurred costs of $5.3 million.

Our share of the R&D costs associated with Tysabri and the US SG&A costs are included in operating expenses in our income statement and amounted to $28.8 million in Q3 2007, an increase of 8% over the $26.6 million incurred in Q3 2006.

We recorded EBITDA losses associated with Tysabri of $7.1 million in Q3 2007, a more than 75% reduction from the $28.7 million in EBITDA losses recorded in Q3 2006. This reduction in EBITDA losses results from the increased gross profits driven by the growth in Tysabri revenues and the ongoing and careful management of associated costs.

As we recently reported at the end 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 in the rest of the world.

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

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

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

In the US, over 2,100 doctors have enrolled 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 continue to see the number of patients accelerate, as more-and-more doctors prescribe Tysabri and those that are already prescribing bring more of their patients on to therapy, as they see first hand, the profound efficacy of this important new treatment.

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

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

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

In order to get to this target of 100,000 we will need to see about one out of every five MS patients who are either on the ABC therapies or on quick treatment starting on Tysabri.

We believe this is a very reasonable and some would say modest target given that Tysabri has demonstrated profound efficacy and clinical trials in MS with the two-third reduction in relapses. Our potential approval in the Crohn's indication, would also contribute towards achieving this target.

Finally, I would like to review our expectations for the balance of 2007. So, we continue to expect revenues excluding Tysabri to approach if not exceed $500 million for the full year of 2007. Other consequence of the approval of the generic competitor to Maxipime in June of 2007 and in anticipation of the approval of the generic competitor to Azactam, we adjusted our commercial infrastructure and reduced our related sales and marketing expenses.

As we reported last quarter, we expect that these adjustments would result in a reduction in annual cash cost of about $40 million. We are on target to achieve these reductions which together would reduce non-cash amortization cost of $60 million with the SG&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 in relation to these adjustments, and as a result of the consolidation of our west coast activities, which will result in the closure of the San Diego facility and the expansion of our facilities in South San Francisco.

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

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

Lars Ekman

Thank you, Shane. And good morning or good afternoon, to everyone. I’d like to spend the next few minutes discussing the following topics. First, I'll you an update in Crohn’s disease followed by an update in MS, and finally, making some comments on other therapeutics opportunities for Tysabri. I'll then turn to some brief comments on our additional R&D programs. Thirdly, I'll then cover our Alzheimer programs 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 its progress to-date.

So let me start with Tysabri and Chron's disease. At the end of July, the joint committee of GI Drugs Advisory and the Drug Safety Committee recommended approval of Tysabri for patients with moderate-to-severe Chron's disease who have failed or cannot tolerate available therapies. In such meeting, we have been working with the FDA to address concerns noted by the Committee, of which, the FDA informed Elan and Biogen that the Agency will expand its regulatory, with UK, as it required additional time to review the proposed Tysabri risk math for Crohn’s disease.

Under the revised timeline, the companies 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 at the American College of Gastroenterology in Philadelphia and further aspects will be presented at the European GI Week in Paris later this month.

An important highlight from these aspects suggests that Tysabri is effective in inducing response and sustaining remission in Crohn’s patients in the absence of concomitant immunosuppressants and corticosteroid therapy.

In addition, the analysis also suggests that Tysabri is effective in inducing response and maintaining remission in Crohn’s patients who failed prior anti-TNF therapy and did not receive concomitant immunosuppressants.

So, let's then turn to Tysabri in MS. As previously mentioned, at the end of September, there were approximately 17,000 commercial and clinical patients being treated with Tysabri in MS worldwide. It is important to have this in context as to update the safety metrics we shared at ECTRIMS in Prague earlier this month.

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

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

Additional results from a separate plasma exchange study, even know as the PLEX study was presented. The data from this study suggests that plasma exchange may be an effective means of accelerating the removal of Tysabri from blood serum. This is important since the literature has suggested that early diagnosis and rapid removal of the immune modulator are key denominators in the therapeutic intervention of drug-induced PML.

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

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

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

Then finally, let me turn to our Alzheimer programs currently in the clinic. I will start with the progress of the ELND-005, our oral small molecule for AD, which is in Phase I in collaboration with Transition Therapeutics. This molecule has been shown to be effective in breaking down beta-amyloid fibrils. During the quarter, we have completed the Phase I program and the drug has proven to be safe and well tolerated.

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

Next, in line are our immunotherapeutic programs with Wyeth. Currently, we have three distinct compounds in clinical trials. These programs are all on track with the milestones that I had shared during our second quarter earnings calls.

To summarize, ACC-001, our active immunotherapeutic approach, which includes 250 patients, is on track in the ongoing Phase II trial. In the tested approach, subcutaneous formulation of Bapineuzumab known as AAB-001 is progressing through the Phase I trial. And we anticipate starting Phase II in the first half of 2008. This subcutaneous formulation of Bapineuzumab will greatly increase the market access opportunity and provide for an expanded commercial opportunity.

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

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

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

In the EU, we recently received an advice letter from the CHMP where they agreed to proceeding to Phase III with minor adjustments.

As part of our continuing clinical progress, we have scheduled a number of investigator meetings during the coming weeks. During these meetings, we will be sharing the Phase III design and study protocols. Characteristics of the Phase III trial design include the following.

More separate pivotal placebo control studies with a total of approximately 4,000 patients will be implemented across two-third populations with mild to moderate Alzheimer's disease. Specifically, there will be two global trials in APOE carriers and there will be two global trials in APOE non-carriers. These trials will be of 18 months duration. We will have a single dose in APOE carriers and we will compare 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 Wyeth believe that this Phase III program optimizes our opportunity to develop a drug that would slow cognitive and functional deterioration in Alzheimer patients.

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

Chris Burns

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

Question-and-Answer Session

Operator

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

Jack Gorman - Davy

I just had a couple of questions on the final piece of information on the Phase 3 design that you shared with us, Lars, I suppose in the first instance my first question would be is there a plan or it's in the protocol to include interim analyses over the course of the 18 months of data? And secondly, is there any update that we can have from you on the filing and the manufacturing strategy that you have for Bapineuzumab and the other AD programs?

Lars Ekman

Okay. The first question is related to an interim look. It is premature at this point to give information of that since we have not received a specific feedback from all the regulatory agencies at this point. Once we have that information that will become available.

Jack Gorman - Davy

But when do you expect those?

Lars Ekman

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

Jack Gorman - Davy

Okay.

Lars Ekman

And the next question was related to our manufacturing capability?

Jack Gorman - Davy

Yeah, yes.

Lars Ekman

Perhaps I can turn it to you Kelly for that.

Kelly Martin

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

Jack Gorman - Davy

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

Kelly Martin

We are in the process of finalizing things with Wyeth. I think this capability is within both companies that we can leverage, which we will do. And given the magnitude and the importance of this product to both companies and obviously the magnitude of the market, I think its fair to say that we will both be participating in the manufacturing processes and those details will be released as we reach completion on the manufacturing plans. But we believe that it's important for us to be involved with this, given the partnership with Wyeth and given the magnitude of the opportunity and the magnitude of the business.

Jack Gorman - Davy

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

Shane Cooke

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

Jack Gorman - Davy

All right. That’s great. Guys thanks so much.

Operator

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

Ian Hunter - Goodbody Stockbrokers

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

Lars Ekman

First of all, no change has happened since the company is communicated three months ago. So the program is absolutely on-track. We have used the language that the data will be available by mid-year, if that is plus-minus couple of weeks around mid year, I think it's too early to say and because we have to address which international scientific meeting we would present the data at, and therefore, there is a slight 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 the test of the Tysabri patient numbers with the reported revenue and I'm just wondering, first of all, have there been a steady ramp up of patients in both the US and EU over the three month period of the third quarter or has there been any lumpiness in it? And has there been any level of discount that you are having to apply in the US and EU?

Kelly Martin

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

Ian Hunter - Goodbody Stockbrokers

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

Shane Cooke

If you look at the patient additions, the patients additions in the US accelerated over the previous quarter, 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 it would have been in last quarter. In Europe, the number of patient additions is down a little bit from last quarter and we would put that down to summer months in Europe, where things tend to slow down particularly in August.

Ian Hunter - Goodbody Stockbrokers

Okay. Thanks very much.

Operator

Your next question comes from the line of Orla Hartford with NCB.

Orla Hartford - NCB Stockbrokers

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

Lars Ekman

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

Kelly Martin

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

Orla Hartford - NCB Stockbrokers

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

Lars Ekman

I think that there were two cases that were reported of other opportunistic infections, all of which returned to normality. That was at an incidence rate that was similar to what we have seen previously.

Orla Hartford - NCB Stockbrokers

Okay, great. Thanks very much.

Operator

Your next question comes from the line of Corey Davis with Natixis

Corey Davis - Natixis Bleichroeder

Hi, thanks very much and large thanks 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 two doses in non-APOE patients or multiple doses?

Lars Ekman

I said multiple doses in APOE non-carriers.

Corey Davis - Natixis Bleichroeder

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

Lars Ekman

We will have an investigator meeting within the next couple of weeks and I think it is fair to the investigators that they should be the ones to learn various specifics. I think we want to be forthcoming to the financial community and gave broad strokes at this point. And then, while we have had the dialogue with investigators, we will come back to you with the details. I think that's sort of a current [we see 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 that they are more sensitive to vasogenic edema?

Lars Ekman

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

Vasogenic edema is, as I've said many times before, it's a largely asymptomatic and transient MRI finding. We have learned that it is more abundant for cares. That has influenced the design of the trial, so that we can minimize this event. We do not know yet if that is sort 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 therefore we would only do one dose in those patients. In the APOE non-carriers, we will do the same dose and then for other doses.

Corey Davis - Natixis Bleichroeder

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

Lars Ekman

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

Corey Davis - Natixis Bleichroeder

Okay.

Lars Ekman

However, I would also like to remind all of us that we have the objective to develop a drug that fits all patients. The ability to use pharmacogenomics to identify specific patients groups is there to optimize the value of the drug and to optimize and find what therapy is best for patients with different genotypes within the Alzheimer disease as a whole. This is to my knowledge one of the first times where in a study of this magnitude companies have prospectively defined specific genotypes in order to optimize the therapy

Corey Davis - Natixis Bleichroeder

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

Lars Ekman

Absolutely. In each of the four studies there is very well defined placebo group. And in each of the trial is a pivotal standalone trial by itself.

Corey Davis - Natixis Bleichroeder

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

Shane Cooke

I think Corey it’s a bit early in the process. Obviously Biogen is reviewing its strategic alternatives. There is as everybody knows a change and control provision that's in that, that will come into effect in the event of a change of a control occurring, which isn't the case yet. And if that does occur we have the options of buying the other 50% of Tysabri, selling the other 50% retaining the collaboration as it is. Our R&D we may look to try and amend this. And its far to early for us to give any view as to where that would go and there are provisions in the agreement that are designed to try and make sure that any price that is arrived at either fair price and from the perspective of both parties. And that's all, I can say on that point.

Corey Davis - Natixis Bleichroeder

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

Kelly Martin

Corey, its Kelly, I think Shane said there is lots of detail in there. It's all contingent upon again in respecting the process that Biogen has announced. It doesn't help anybody to speculate but there are provisions about ongoing supply obligations in 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 Leerink Swann

Bill Tanner - Leerink Swann

Thanks for taking the questions. Lars, a couple of questions for you on Bapineuzumab, I think you did mention that the FDA had looked at the Phase 2 data, and it seems I guess or [rather than] that would have but I don't know if you can provide any color, as to whether you are focused on or just the whole data in general?

Lars Ekman

I cannot provide any color on that. As you know, the trial is ongoing and giving you color on that would sort of un-blind the trial. They have seen all the data relating to safety of the drug, related to the efficacy of the drug, so we have shared all the data from this, from that trial for the Phase 1 trial and based on the totality of that and our experience was [79 for 2] we have defined the trial and we have agreed with the trial design with the FDA.

Bill Tanner - Leerink Swann

Okay. And then just on the dosing, I understand the APOE carrier versus non-carrier sort of understand the rest now, but was the dosing then really arrived at more or the differential dosing arrived at more from a safety perspective trying to avoid the vasogenic edema, I mean I am guessing what is known then about the relative efficacy Bapineuzumab and the two different types of patients and I don't know if you have disclosed it or and if you 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 there is an abundance of vasogenic edema in the APOE e4 carriers that although the totality of the patients is low, the relative percentage is higher in the APOE e4 carriers and by having a lower dose in their patient category we can significantly reduce this event. That had an impact on this line.

Bill Tanner - Leerink Swann

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

Lars Ekman

As soon as we get…

Kelly Martin

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

Bill Tanner - Leerink Swann

Okay, fair enough. And maybe if I can just ask one last on Tysabri on Crohn's maybe Kelly, just sort of strategically I mean, I guess there is [a canter] would think that the drug is doing -- flipping along pretty well in MS and that, would you potentially then risk that franchise obviously if you were to expand and into Crohn's and I think Biogen has suggested that in 2010 that 100,000 is 80% to 90% MS. So, just sort of thinking about the strategic, the strategy of going into Crohn's as to whether or not PML does prop 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 one that we and Biogen spent time on. There is two ways to look at Tysabri, given its efficacy. It clearly should be overtime predominant MS therapy, given the current alternatives, that's sort of one way to think about it. The other way to 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 have application in the GI space, Crohn's and ulcerative colitis and it's an asset that we strongly believe collectively between Biogen and Elan, that we'll have applications in a number of oncology targets.

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

Bill Tanner - Leerink Swann

Okay, thank you.

Operator

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

Rich Silver - Lehman Brothers

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

Lars Ekman

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

Rich Silver - Lehman Brothers

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

Lars Ekman

We have not yet discussed the timelines. We have to investigate this. What happens in the process is that first you have to present the outline of the trial with investigators. We have all the trial sites, of course we have our own assumptions and we then have to validate those assumptions discussing with investigators, can they keep this certain patient flow et cetera, et cetera. So, giving you timelines before we would have the first investigator meeting would be unwise. We hope and we think we can recruit fast for the following reason. One is that there is no big Phase 3 trial ongoing that is competing with this. And we have received very significant interest in the program, so both Elan and Wyeth has prepared sites both in North America and the US, so we are well prepared to maximize the success of this.

Rich Silver - Lehman Brothers

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

Lars Ekman

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

Rich Silver - Lehman Brothers

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

Lars Ekman

That question is obviously related to interim look. I did not envision that even if there would be an interim look that we would stop the trial. 18 months is what you need for this kind of trial. The FDA has been very clear and so have the European authorities.

Rich Silver - Lehman Brothers

Okay. Thanks very much.

Operator

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

Walter Branson - Regiment Capital

Thanks. A couple of things. With regards to the change of control 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 potentially also sell to a third party?

Kelly Martin

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

Walter Branson - Regiment Capital

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

Kelly Martin

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

Lars Ekman

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

Kelly Martin

This is Kelly. Just a broader comment 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 major competitors from product point of view in that space for the last decade and more. I think it's logical to assume that as alternatives appear, Tysabri being the first that through the market battle if you will, we'll shift to a much higher efficacy plateau. And in that space, we believe overtime that the existing market structure could change fundamentally and quite significantly with multiple options. Tysabri clearly being the one that we're currently most interested in, if that's helpful.

Walter Branson - Regiment Capital

Yes it is. Thank you.

Operator

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

Ian Anderson - Cowen & Company

Hi, good morning. Thanks for taking the question. Quick follow-up on the Bapineuzumab Phase III, will there be, as there were in the Phase II MRI scans taken after each infusion. And were the mix of the APOE positive and APOE negative patients be 50-50 in the trial designed or will it be more representative of the patient population at this 40-60?

Lars Ekman

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

Ian Anderson - Cowen & Company

Okay.

Lars Ekman

The second question was, just remind me?

Ian Anderson - Cowen & Company

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

Lars Ekman

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

Ian Anderson - Cowen & Company

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

Lars Ekman

I don't think we have presented that 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&A session. I would like to thank everybody for their participation. I would reiterate since many of the questions focused on the Phase III design and we are in a quite unique situation where the Phase II is ongoing and its blinded a very small group of people from Wyeth and Elan had an interim look at the Phase II, and obviously that opportunity allowed us to very, very specifically design a Phase III that as large indicator will be shared with investigators in the coming weeks and we would hope to get first patient dosed in North America towards 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 first immunotherapeutic program and what is an expanding and deepening portfolio in that whole entire space. So, we look forward to more progress there.

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

Chris Burns

Thanks very much operator. That concludes our call today.

Operator

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

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