Here is text of the Q3 Earnings Conference Call. I will separately answer some of the earlier posted questions which might not have been covered....
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Conference Call
October 9, 1996
Biogen
This is an ACCESS conference call for Biogen, moderated by Rick Lundberg, confirmation number 342706, on October 9, 1996, at 5:00 PM Eastern Time.
Operator [Eric]: Ladies and gentlemen, announcing your host for today, Mr. Rick Lundberg, head of Investor Relations.
Rick: Welcome everyone. Thanks for joining us on the call. Given the level of interest in our progress with AVONEX(TM) and obviously the one-time events in the quarter, we thought it appropriate to update you again this quarter via a conference call. As a reminder, this call is for the investment community only.
Let me introduce senior management that is here with me and also on the road right now.
Jim Vincent, Chairman and CEO; Jim Tobin, President and Chief Operating Officer; and Ken Bate, who is not with us, he is in California, VP of Marketing and Sales.
The agenda for our conference call today will be the introduction by me and a reading of the Safe Harbor Statement, summary statement by Jim Vincent, summary of AVONEX Marketing and how the launch has gone by Ken Bate, and a wrapup by Jim Tobin. And then we'll go into the question and answer session. We're intending to end this call promptly at 6 PM, so in order to accommodate as many questions as possible, we ask that each caller limit themselves to one question only please. I'll be available to answer questions after this call, and also tomorrow. My telephone number is 617-679-2822.
Just a couple of other logistics. Playback of this call will be available through Friday midnight. U.S. callers should dial 800-839-3011; international callers should dial 402-344-1069. Also, we will try as soon as possible tomorrow to make the full text of this conference call available on the Web, probably at prnewswire.com.
I'm going to read the Safe Harbor Statement. Comments made in this conference call may contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. In particular, careful consideration should be given to cautionary statements made in the various reports Biogen has filed with the Securities and Exchange Commission.
Now let me turn the call over to Jim Vincent, Chairman and CEO.
Jim: Good day everyone, delighted to have you with us today. Since we have quite a bit of good news to talk to you about today, let's just proceed on with it. Let me cover just a few highlights and to give you the context how we see the events of the third quarter. First of all, as you saw in our press release, we reported revenues in excess of $100 million for the quarter, which is the highest revenue quarter and the first time we've ever been over $100 million in our history. Similarly, with our earnings report of $1.21 per share, this is the highest quarterly earnings that we have ever reported in our history. And, of course, included in that $100 million revenue most importantly are AVONEX revenues which exceeded $27 million for the quarter.
So I think the context of this certainly as it relates to AVONEX, in addition to the excellent financial news on top of that, is that many of you will remember that we have been saying and repeating to you for the last 9 to 12 months in response to discussing how we see the AVONEX story unfolding once we introduce, by describing that we felt we would be able to exceed the experience of Betaseronr after they introduced in the first year. I remind you that from introduction within the first year they accomplished approximately 30,000 patients on drug, which turned out also to be their peak.
We believe with this result that we are on that track to exceed that in the first year of our experience with AVONEX, even though, of course, in our case we are having to compete with Betaseronr out of the blocks and have competition, whereas they didn't. And we fully expect, given the events of the recent months and the more recent events, that we'll have a second competitor on the market prior to the expiration of that first year's experience. But, despite that, we feel we are on the track to achieving that kind of growth story here in the first full year of AVONEX being on the market in the United States.
Let me comment a little bit on the royalty story because that, I believe, continues to be very, very important, even though we have our own first marketed drug on the market. As some of you might remember, this story started about 7 to 8 years ago when we decided we were really going to spend a lot of effort trying to take our broad patent portfolio and maximize its value-added out there in the marketplace. And, of course, the first major event was putting together the whole deal structure on hepatitis with SmithKline Beecham and Merck, which has paid off very, very well. Then came the PL promoter, then came Secretion- we really did our first deal on Secretion with Genentech back four or five years ago, although not a revenue event because we got rights to some things we wanted back from them. But we began arguing and fighting with Pharmacia Upjohn, over the Secretion patent now for some four years with various lawsuits going on and, of course, we settled those and announced to you the settlement, which resulted in a $30 million one time event in the third quarter.
But I think the more important story underlying here is, excluding that $30 million event, we saw royalty growth in the third quarter that was in the range of 13 to 14 percent over the same period third quarter of last year. We think that kind of growth is going to continue, we think we're going to be in double digits for 1997 over 1996, and then probably we'll trend back to still a very significant high single-digit growth rate beyond that. So that story continues to be a very positive one and, which in financial profit terms, amounts to having another drug on the market with revenues in the $500 to $600 million annual revenue range.
Europe, of course, is very important to us. That continues to progress well, and we continue to expect that we'll get approval in Europe and be selling on the market in Europe in the first half of next year. We are building our organization against those goals to be ready to begin to ship and market by that time in the four major countries, where we are going to direct market. Of course, our licensees in the other countries are ready to go at approval.
So, to summarize from a financial point of view. Again, many of you will remember that we have been talking for the last 6 to 8 months about what we expected this year: that in the first and second quarters we would lose single-digit millions per quarter and then, as we moved into the third quarter after approval, we would begin to report substantial operating earnings and behave like an operating pharmaceutical company for the third quarter on. And I think as you'll hear more in the details today, you see the evidence of just that occurring.
So with that, I'll pass the baton to Ken Bate, who will give you some more details on the AVONEX and marketing story.
Ken: Thank you, Jim. I hope everybody can hear me because I'm sitting in a car using a cellular phone in the hot part of California.
Since the launch I have spent a lot of time out in the field, as I am today as well, and I can tell you with complete honesty and sincerity that the launch is continuing to go extremely well. I think Jim alluded to it. Our sales have been every bit as good as we had hoped and expected them to be. The facets of our marketing and sales effort with the launch have been very well received, and we continue to get real high marks from all three constituencies: the payors, the patients, and the physicians. And I think if you were to go back a couple months before launch and ask, what is the theme of all of our distribution and marketing and selling efforts, the theme was that there will not be a prescription for an individual unless things line up for that individual patient, their physician and their payor. So I think what we've designed for the launch is being sent back to us from the marketplace as the way to have done it. So for that we are quite satisfied.
Turning to the numbers, and I know a number of you buy the IMS weekly data and recognize that in the figures I'm giving you, I've got the benefit of that data plus a number of other sources of information, so to give you the sense of how we see everything. Starting a few weeks back, all the data would indicate that we have been running with AVONEX at a 40 plus percent share of the overall prescription market for the two drugs. But, most importantly not that we aren't pleased with that percentage but most importantly, from the day of launch that we have actually been growing the market, and if you were to go back from early May figures to today, you would find that the market has grown by about 35 percent. Initially, that was fueled by a large number of what we call "naive patients", patients who had been on no therapy prior to trying AVONEX, and within the last several weeks you're starting to see that the Beta Seron quitters become a bigger factor in fueling the growth of the market. So that continues to be a very important indicator for us, that this is about growing the market as opposed to just reallocating market share.
As I said, when you put all the data points together, it points to the fact that as of the end of the quarter early last week, there were about 14,000 patients on AVONEX. That's to the extent that you can be accurate given you're working with some preliminary data, that's plus or minus 1,000 probably, but 14,000 would be the best guess that we have as far as number of patients on drugs four plus months after launch. Since the launch, if you were to look at the figures on a weekly or monthly basis, you would see that month in and month out we've been adding 3 to 4,000 patients once you got beyond the initial couple weeks of launch. There was a noticeable slowdown in the summertime that we felt starting as early as late July and certainly continued through Labor Day with regard to the flow of patients into doctors' offices because of vacations, both for the patients and for the physicians. I can report with a great deal of relief and comfort that since early September, that activity has picked up and it has continued to be very strong as we look at the lead indicators that we've got coming into the month of October.
Just one bit of caution, that gives us some warning, however, that things can be a bit sluggish and slow down some during the holidays. It's just something that we'll have to keep an eye on, as I'm sure you will, as we get up in a couple months from now to the weeks around Thanksgiving and Christmas.
I think the next question that you would ask beyond the numbers is, what's the word from the MS community about how AVONEX is doing. I can tell you, and this is from countless conversations with doctors, that there are very few reported problems with side effects. There are virtually insignificant numbers, if any, of the IM injection. I think we've been telling you that if we train patients properly, that would not be an issue. And the report from virtually every doctor you come to is that this is a more attractive side effect profile and the IM injection is an absolute non-event. And, as a matter of fact, in the couple of calls I made today, many are saying it's preferred, not just from the frequency standpoint but also from a discomfort or lack thereof standpoint.
For those patients who are switchers and quitters, our market research feedback is that they are very favorable when you ask them about AVONEX versus Betaseronr. We've had very few dropouts. I think the only way you could categorize at this point, we've had hardly any, and this is sharp contrast to Betaseronr which - even if you went back to as early as one month after launch and continuing to be one month after a patient starts on drugs, they have a noticeable dropout rate. To this point, that has not been a phenomenon that we've observed. The status of physicians is they're getting more comfortable with the drug. On average they've got 5, 10, 8, 15 patients on the drug, and the lack of negative feedback is certainly contributing to their building confidence in prescribing the drug and our continued confidence in the comments that Jim Vincent made a couple minutes ago.
Turning for a second to payors. They continue to say that there are no problems. They are very pleased with our distribution channels. Many have given us preferred status. We've had no issues about not being on a formulary, and to date, I cannot think of a situation where a patient is denied access to AVONEX in the managed care or pharmacy benefit world as we know it today.
Another category to comment on is competitors.
There has been no broad response by Berlex, either from a marketing standpoint or from a selling activity/selling effort perspective. They are certainly aware of the figures. I think the lawsuit versus the FDA was sort of a major crutch of holding their sales force up from a morale standpoint, and I've got to believe that the news that they got within the last couple days is just going to be very, very difficult for them. When their sort of last beacon of hope fizzles.
Teva and Copaxone: I think that's one of your more obvious questions, and I'm sure we'll get some more in the Q&A. They are making lots of noise. It's hard to define who the "they" is at this point, other than it's a small marketing team out somewhere in the Midwest. I think Teva is serving as a prod to force them to be aggressive and active, and I think what you saw at the Advisory meeting was very indicative of Teva's style. We are absolutely ready for their launch, whether it comes at the end of this year or if it comes in the first quarter or first half of next year. We saw the Advisory Committee meeting, I think you did as well. When you look at what their claims will likely be; in light of the sophistication that is now in the marketplace as far as understanding the disease as a result of Berlex's effort and ours, we are very comfortable competing with what will be their product label and equally, if not more importantly so, with their product profile that involves a frozen lyophilized product as well as the requirement of a daily injection. We think that the doctors and the patients know what's important and that AVONEX will stack up quite favorably. Their focus will probably be on quitters. They are already trying to position that all beta interferons are alike and that the profile combines all the features of Betaseronr and, as I've reported, that is not what the medical community or the patient population is feeling. So, we're as confident as ever that they'll be a player in the market but will not in any way alter our expectations for the drug.
As far as with our effort going forward, we will extend our reach to more physicians. There is not one that I have heard of that doesn't know about AVONEX, but we'll continue to push out and spend more time with the secondary groups of doctors as we cover the primary targets more and more. The product message of disability and side effects is still a key one. Compliance will become a major focus because it's only half the battle when you've got a patient on; the other half that's keeping them on, and we'll be working hard to build relationships with various partners to make sure that we've got compliance and continued good relations.
So I look forward to this quarter and the ones ahead and, whenever we have another session, being able to give you a report on how things have gone. So, with that I'll turn it back to Jim Tobin.
Jim: Thank you, Ken. I want to just hit the high points one more time and talk just a little bit about the numbers, and then we'll turn it over to questions.
As Ken said, the launch is going very positively. The commercial organization is performing exceptionally well, and that's important because we're setting a new standard in the marketplace for service that the other guys are going to have to try to match. $27.5 million of sales in Q3 annualizes to over $100 million in our first full quarter on the market and, if my memory serves me correctly, that's a number somewhat north of what Betaseronr was able to do in its first full quarter. So we are delivering on the promise that we would do that well or better. 14,000 new patients, plus or minus 1,000; 40 percent market share; very few dropouts; we're growing the market.
About one-third of the patients we pick up come directly from Betaseronr. The rest represent growing the market, either through naives or through bringing people back into the market. We're getting most of the new scripts, and the activity indicators that we watch for, for example, what's going on with phone calls, what's going on with Interim referrals, that sort of thing, all of those activity indicators are still strong and getting stronger coming out of August.
As far as the numbers go, I think that setting aside the $30 million from Pharmacia, that double-digit growth in royalties is significant. Perhaps more significant, though, is the fact that our SG&A expenses were flat, even down a little bit from Q2 to Q3, just as we had said they would be. It's likely to stay that way in Q4. We'll see a little bit of a bump early next year as we prepare to launch in Europe, but then we intend to leverage that line of the P&L very strongly. R&D: basically flat, a little bit up from Q2 to Q3 and, again, ex deals, I think we will see modest growth in R&D. But again, with AVONEX sales growing strongly, we will leverage the expense base. Key thing here is that ex the one-timers, we delivered on what we said we would do, which is become a sustainably profitable operation starting in the first full quarter of launch.
If you do the math and back out the one-timers, you're probably looking at a pre-tax number in the area of $15 million, which is a pretty good start. [That equals around $0.20/share after tax. - Rick]
So, bottom line is, we're real happy with the numbers we've posted this quarter, and we intend to keep on going. So, let me, with that, turn it back to questions.
Rick Lundberg: Eric, if we can start the Q&A session now.
Eric: Ladies and gentlemen, if you have a question, please press the "1" on your key pad. If your questions have been answered or you wish to remove yourself from the questionnaire, press the pound sign.
Our first question comes from Lawrence Blumberg of Alliance Capital.
Lawrence: I guess I can't say that someone already asked my question. What time frame, if at all, might there be a movement into the off-label usage and to relapsing progressive patients?
Jim Vincent: Well Lawrence, of course we're running, several other clinical trials -started some time ago- at both ends of the market. The monosymptomatic trial is on the front end of the relapsing market, and the multiple dose trial really aimed at the back end. Those trials are going to go on for several more years, so hard clinical trial data, will be awhile.
But if you want my intuition, you're going to see well before then as this drug becomes more understood, you're going to see well before then off-label usage by many patients. You kind of look at it this way. If you are an MS patient today and you look at the side effect profile of this drug and you look at that disability claim that's real, you ask yourself the question, would you try it? If I were an MS patient, I would, at almost any stage. These physicians are being very responsive to their patients. So it would be rather unlikely for most physicians, if a patient said Look, I really would like to try this out, that the physician would turn that person down if it was within the realm of even possibility that person could be helped.
Ken Bate: Lawrence, with the MS society giving us some fresher definitions of relapsing progressive, I can tell you that that is considered to be within the label by very many folks. They are considering relapsing remitting and relapsing progressive to be the appropriate target audience before you even get into the fact that a number have commented that they are using it and trying it on secondary progressives, as Jim was alluding to.
Lawrence: Great, thank you.
Jim Vincent: Thanks, Lawrence.
Eric: Our next question comes from Craig Parker of JP Morgan. Mr. Parker disconnected from the line.
Our next question comes from Ed Hurwitz of Robertson Stephens.
Ed: I'm going to try and figure out the tax rate and so maybe bear with me and correct me where my math is wrong. I was under the impression there was a $22 million tax credit in the quarter, so if I add that back in, you paid about $26 million in tax, is that correct?
Jim Tobin: Ed, the tax rate situation for us this quarter is a complex matter. I'm going to ask that you talk to Rick off-line afterwards to get more details on it. I'll just say this. Did you use the number 23?
Ed: I used the $22 million credit, but I just wanted to get at if the real tax...
Jim Tobin: The impact in the third quarter is about $22, $23 million.
Ed: So if I back that in, then what you've actually paid is about a 65 percent tax rate?
Rick Lundberg: No, I don't believe that's correct. We can talk about it off-line.
Jim Tobin: We'd like to handle the rest of it, Ed, off-line.
Ed: Okay, I'll be happy to do that. Maybe I could ask another question in exchange then. Jim, you mentioned that double-digit growth, or high single-digit growth in royalty income after next year where you'd see double-digit growth. Can you just remind me of the patent expirations on Intron A, Hep B and on your Secretion proteins? Particularly in Europe, I was under the impression some of them expired in '99 and if with those expirations you'd still expect to see the single-digit royalty growth.
Jim: I'm going to give you the general answer is that the real expirations start out, in Q4 '99. But, from a revenue impact if you work through the models, you really don't start to see significant impact until 2001, and then things do not fall off a cliff. But no, I'm not talking out in the next century about single-digit growth
.
Ed: No. For my clarification then, you guys have looked at the numbers and you would be comfortable saying it's not a significant impact until 2001 from expirations?
Jim Vincent: Yes, that's about the time period where you start to see significant downturn presuming nothing new happening from today.
Ed: Great, thanks.
Jim Vincent: My comments relate to the horizon over the next several years and they're consistent with what we've said before, that given the hepatitis story first and foremost and the secular growth, that one has a tremendous amount of legs. We see Germany is taking off, I think UK is going to follow it, other markets. I think we're going to continue to see high single-digit growth rate, except I think we're going to see higher growth next year as I mentioned.
Eric: Our next question comes from Kemp Dolliver of Trade Street Investment Associates.
Kemp: Thank you. Given the progress of the launch so far, is there any plan in the near intermediate future to increase the size of the sales force?
Jim Vincent: Ken, why don't you take that?
Ken: Sure. If it I'm sorry, I didn't get your name quite right, was it Kemp?
Kemp: Yes.
Ken: I'm sorry. It would be very modest. I mean, it wouldn't be anything that would register on a seismic scale in any of your modeling. There are a handful of cities as we get into the launch where we can justify having another small incremental add to the sales force. But as far as being able to reach the 4 or the 5,000 physicians that really do treat all the MS in the United States, we're pretty close to that with the 50 folks that we've got. So it might get a teeny bit bigger, but not significantly so.
Jim Vincent: Kemp, of course, in addition to that, we will be bringing up the European sales force leading up into introduction, so we'll be adding a fair number of folks over there, probably in the 60 to 75 range across the countries, extended over time. That probably will be not that high at the time of introduction.
Kemp: Great, thanks.
Eric: Our next question comes from Edmund Debler of Mehta and Isaly.
Edmund: Congratulations with some nice numbers.
Jim Vincent: Thank you.
Edmund: I guess this question is best for Ken. Tell me what you mentioned, about people dropping out and getting involved with quitters from Beta Serone and naive patients. Can you give us some more detail on all that and how the market is shaping up?
Ken: Okay. As far as, if you sort of take the broadest view and step way back from it, the market really is comprised of quite a significant inventory of quitters at this point, people that over the last 2-1/2 years have tried Beta Seron and quit. There are a very large number of patients that have never tried interferon therapy, and of course that figure by definition grows every year as 8 or 10,000 new folks are diagnosed as MS. And then the third category, of course, what the figure is we can debatebut whether Betaseronr has currently got 20,000 patients or 18 or 22 or whatever the figure is, those folks are currently on therapy.
When you looked at our sales in the earliest months, it was primarily driven by naive patients and a fairly active bit of switchers, so the earliest growth in the marketplace came from naive patients. Those two categories represented the lion's share of the first handfuls of thousands of patients we've gotten.
What's starting to occur now is some of the quitters who had quit Betaseronr over an extended period of time have been, it turns out, a little reluctant to try AVONEX because they wanted to find out if this was just going to be another one that provided them with the same disappointment and frustration. With the word spreading quickly that that's not the case, we're starting to see a pick up in the number of quitters. So when you put the quitters and the naives together, we're seeing plenty of momentum and more than half of our sales are coming from those two sectors, which are contributing to the growth of the market.
Edmund: How many patients do you think are out there now that you can impact in general, you and Berlex?
Ken: Well, I think the answer is different for the two of us because I think let's just for purposes of this answer say roughly 60 percent of the market, of the overall MS market, falls into what has become the practical interpretation of our label, meaning to the question asked earlier by Lawrence, relapsing progressive, relapsing remitting, folks like that; in other words, not the primary progressives or the secondary progressives, together what has traditionally previously been called chronic progressives. But if you start with 50 to 60 percent of the market, meaning 125, 140, 150,000 patients, by definition, less than half of that is available to Betaseronr because the patients are on the drug or have been on it and quit; because I think when you look at their data, there's probably 60 plus thousand patients that have tried one of the two therapies. So for them, I think the prospects are a far smaller market than for us. And frankly, of that figure I just described, the only one that I would call theoretically off-limits is by definition the 15, 14,000 patients that are now on AVONEX. So I think it's been proven that there are very willing switchers out there; there are doctors and patients willing to switch; there are payors willing to switch. And as far as quitters are concerned, they are just starting to come aboard. So I think that will be a very fertile sort of submarket for us to access.
Edmund: [inaudible]
Rick Lundberg: I'm sorry, we're going to have to go to the next question.
Eric: Our next question comes from Reijer Lenstra of Smith Barney.
Reijer: Good afternoon. Congratulations with a very nice quarter. I also see in your press release, and Jim spoke about it on the call, that you expect now a launch in the first half of '97, which is a little bit more aggressive than you were in your last call when you were talking about a second half. When do you expect we could see an approval by European authorities, and how long do you think it will take from a general approval to pricing in different countries in a launch?
Jim Tobin: We really haven't changed our position on when we will be launching in Europe; we have been talking and thinking in terms of first half of '97 for quite some time now. As far as how the rollout will occur, once we receive a recommendation from the EMEA, then the countries have 90 days or probably it more than that, it will probably take 4 or 5 months for them to give us their approval. So that translates to an approval at the end of the first quarter, early second quarter, something like that. At that point, we will be able to sell directly in Germany and the UK right out of the blocks. It will take something like 5 to 7 months more before we get pricing in France. It will probably take more than a year more before we get pricing in Belgium, for example. And countries like Spain and Italy are somewhere in between. So you will see a gradual rollout across Europe in terms of how countries come on, ranging from right away to more than a year.
Eric: Our next question comes from MayKin Ho of Goldman Sachs. [Maykin apparently disconnected]
Our next question comes from Meirav Chovav of Solomon Brothers.
Meirav: It's Meirav Chovav of Solomon Brothers. Congratulations on the great launch and quarter. A question, talking about the seasonality aspects. Would you sort of give more details in terms of what you have been seeing in September versus, let's say, August. Are we talking about like August, like 3,000 patients versus like 4,000 patients in September? And in terms of the changing proportion of Beta Seron to Beta Seron quitters, I'm not really sure what's the definition of Betaseronr quitters. Are you seeing people, you know, what I said, experienced users, or are you seeing people who are just, you know, like a week ago on Betaseronr versus like six months ago were on Betaseronr?
Ken Bate: Okay. Let me answer the second one first. When we call it a quitter, we call it someone who has been off Beta Seron for a measurable and significant period of time, not someone that used up their last drug supply or took a couple week sort of Betaseronr holiday and then switched. We're talking to people when they're being qualified and we're asking questions, such as, Were you on Betaseronr a month or two or three? Did you quit many weeks or several months ago? That's what we're calling quitters. So if somebody quit within the last month, we're calling those switchers because we're deeming that to be sort of provoked to some degree by our being on the market.
And then the second part of the question was, the pickup in activity. I don't want to get too specific with the numbers because when you start looking at weekly data, the error in the surveys is so great. Let's put it this way, Meirav; there were a couple, two or three weeks in August where we saw sort of on a weekly activity basis about a 15 to 25 percent dropoff in what had occurred in the weeks preceding. When you then got into September, you saw those figures pop back pretty strongly to the kind of weekly numbers that we had been seeing right up to that point. The dip wasn't enormous, but had you stayed down in that dip, it would have been measurable over a longer period of time. So, my comment was: expect Thanksgiving to exhibit a little bit of a dropoff and over the Christmas holiday, expect there to be a little dropoff, but on balance, it may put you on the shorter end of new s |
