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CONFERENCE CALL
JANUARY 15, 1998
BIOGEN
SPEAKER: This is an ACCESS conference call with Biogen hosted by John Conley on January 15, 1998, at 5:00 PM Eastern Time, Confirmation Number 704539.
JOHN CONLEY: Hello, and welcome to the fourth quarter and year end 1997 conference call for Biogen with a reminder that this conference call is for the investment community only.
With us today we'll be going through with Jim Tobin, our President and Chief Executive Officer; Joe Davie, our Vice President and Research; and I am Director of Investor Relations and Treasurer. We'll go through with myself giving an introduction, mostly the Safe Harbor statements. Jim Tobin will go through some summary, and then our sales and business issues. Joe Davie will cover pipeline and development issues from the clinic, and then Jim will give a brief summary before we turn it over to questions and answers.
The Safe Harbor statement. All 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. With that, let me turn this over to Jim Tobin.
JIM TOBIN: Thank you, John, and welcome everybody. What I'd like to do is make some overall comments first and then go back into it in some more detail; turn it over to Joe to talk about the pipeline. Then we'll go to questions.
I guess I would start by saying we're pleased to be able to report $70 million worth of sales for the quarter in AVONEXr which is almost 60% increase over same quarter last year, and 17% over Q3 of `97, so things are cranking along there. That $70 million breaks down into $60 million U.S. with about 31,000 patients on drug at year end. Ten million in Europe with 4,000-5,000 patients on drug, and royalty revenues of $54 million for the quarter. That $54 million includes the $15 million from Merck from the VLA4 deal. Just for those of you who are doing year to year comparisons. Recall that we had $30 million from Pharmacia in Q3 of `96, so the royalty numbers for the year include $30 million in `96 of one timers, and $15 million in `97 of one timers.
With regard to royalties, just one footnote there. The recent results that Schering Plough got using IntronrA in combination with Rivovarin for hepatitis is very hopeful. It's clear that Rivovarin makes IntronrA better by a multiple, and that bodes well for our royalty stream over the next few years. One other point here I want to dwell on just a moment. If you've looked at the balance sheet, you see that our receivable numbers are up considerably, and I just want to make sure that nobody misunderstands what's going on there. In those receivable numbers are the $15 million from Merck that was a receivable at year end. That has been received, and so that money is in the bank. There's another $15 million that results from a reclass in how we are classifying our foreign exchange exposure on our royalty income.
So none of that increase in accounts receivable has anything whatsoever to do with AVONEXr. In fact, our AVONEXr product days-sales-outstanding are actually lower at the end of the year than they were at the end of Q3. Another item on the balance sheet are some new items that have to do with the buy back of 2 1/2 million shares that was approved late in the year. The strategy we're using there is one of puts and calls to lock in the repurchase price. So you're going to see an entry there for put options that didn't exist before.
I'll talk more about the VLA4 deal a little later, but I do want to highlight this because that was certainly a highlight of the quarter. I would also add that you'll hear more about this from Joe, but we are finally in a position to be able to talk about actual clinical results in real people on several of the things in our pipeline. That bodes well. One piece of update in that regard. We have data now for Gelsolin in patients. I characterize that data as inconclusive, meaning we may have seen something at the higher doses in a subset of patients, but it's not something that knocks your socks off. So we will be looking for a partner for that drug given the fact that the rest of our pipeline is going so well. We'll be looking to outlicense Gelsolin.
Just a little more detail. Thirty-one thousand (31,000) patients in the U.S.; that's a roughly 2,000 patient increase for this quarter. Second quarter in a row that we've done about 2,000 patients net adds-and 10,000 adds overall for the year. In other words, this time last year we were at about 21,000; around 31,000 this year. Market-share wise, we think we're around 60% again. We were about 60% when Cop-1 came on the market mid-year. We sagged a little bit as you would expect when they entered the market, but we've regained all of that market share and are headed up. So we feel very good about that.
A lot of that has been driven by a treat-early message that we have been out there in the market place with for some months now, and I just came from a meeting with a panel of neurologists. It was very clear from their reaction that they are, today, very comfortable with AVONEXr from both from an efficacy and a side effect point of view; and that they are comfortable now in treating patients much sooner than they were, let's say, even a year ago; even six months ago. So that treat early message is beginning to get some serious traction. Drop outs continue at 1.5% to 2 % a month which is a very acceptable level for us and we're comfortable there.
In Europe, as I said before, we have 4,000-5,000 patients, and we continue to see our sales in Europe double quarter over quarter. Every quarter there is, in terms of actual sales, is about $1 million in Q1, $2 million in Q2, $4 million, and now this quarter is $10 million. Germany is the biggest piece of acceleration there. Italy is coming along as well. We received final publication of our price in France right before Christmas, and so there are $100,000 of French sales in that $10 million of European sales. For all intents and purposes, France is yet before us, and we expect that to be certainly one of our most successful markets, so there is a lot of growth yet to come in Europe as we roll forward.
Pricing there continues in the more or less $11,000 per year average. That's a weighted average between our direct sales and our distributor sales, very attractive from that point of view.
Copaxone still isn't on the market in Europe. Serono will be on the market soon with a product, that at the molecular level is very similar to ours. But the formulation has important differences. Formulation and dosing are different in important ways. So we kind of feel like we have the best of all worlds here. Their trial clearly confirms what we have been saying about our own drug; that Betaseron (Betaferon as it's called in Europe), is a different drug that is not as effective as 1a's like AVONEXr and Rebif, and we now have a second trial that shows that. On the other hand, although Rebif had two different doses that basically straddled ours. We are at 30 micrograms per dose. They were at 20 and 40.
There was no statistical difference between their higher dose and their lower dose, and that confirms what we have been saying along, which was we got the dose right in the first place. On top of that, their data showed not as good efficacy at the low dose, equal efficacy more or less at their high dose; but it's three times a week. They have a lot of skin reactions, and they have neutralizing antibodies that are 4-6 times higher than what we see. So we expect to be able to compete very effectively with them when they get to market.
In other international markets, we recently signed a deal with Abbott to register and sell AVONEXr in Latin America and the Caribbean. We expect to sign agreements in Eastern Europe, Turkey, and South Africa soon. New Zealand-we're waiting reimbursement. We've got approval that we now need pricing there. In Australia we're seeing progress finally on our file, and last but not least, we expect to launch in Canada, upon approval prior to mid year.
Let me turn just briefly to the Merck deal which was a really important strategic deal for us. Fundamentally, the rationale there is that we have a pathway here that can be very fruitful in terms of products for a number of large and small indications in an anti-inflammatory area. As we got into this, we found we had a molecule that was ideally suited for asthma, but Biogen is not in the best position to take on Glaxo and Astra and Schering Plough in asthma; so we needed a partner who could stand toe to toe with those folks. Merck can certainly expect to do that. At the same time we maintained rights to the smaller indications such as MS where we've already shown we can be successful at marketing, and as a result, I think we have kind of the best of both worlds there.
In addition to that, we get help in putting us in business in Japan. We want to be a global biopharmaceutical company. We have to operate in Japan, but how do you get there from here? Fundamentally what this does is allow us to variablize as much as $100 million up front costs that can occur while you're trying to get on the market in Japan, and thereby minimize our risks that way. Last but not least, if everything goes right, we get $145 million worth of royalty payments; $21 million would flow back in Merck's direction but that's big time money.
Let me now turn the call over to Joe Davie to talk in more depth about the pipeline.
JOE DAVIE: Thank you very much, Jim. As Jim indicated, we're now at a point where we're beginning to see the early stage clinical results from some of our compounds. Let me just briefly outline what we're seeing. We have completed our Phase IIa study of LFA3TIP in patients suffering from severe psoriasis. We're still analyzing the data, so we don't have complete results at this point. Those will be reported sometime later in a scientific setting, sometime later this year. We know at this point that the results are encouraging.
Remind you that LFA3TIP is a human fusion protein which binds the T-cells and prevents activation by antigen presenting cells. We know that psoriasis is a T-cell mediated disease so that this was a natural first application. Most psoriasis patients can be treated with topical medications, but a large minority require some sort of systemic therapy; those with severe psoriasis. As you know, the currently available treatments are only partially effective and they are not fun.
There is a clear need for advance therapies to control the severe forms of the disease on a long term basis without harming the patient. We found in our trial, that a weekly intravenous injection of LFA3TIP at low doses, can produce impressive results over just a few weeks. We initially wanted to see if more than at least 50% of the patients taking LFA3TIP would show an improvement of at least 50% according to their PASI scores which is the composite index of disease severity, and the results that we've seen so far more than meet that standard. Under conditions with very little with the way of adverse effects. This is a very small exploratory dose ranging study.
We're about to begin a broader Phase IIb study which should go a long way to really look at this in a much more statistically significant way with a placebo arm, but at this juncture so far so good. We're also pursuing the administration of intramuscular injections, and obviously we'll keep an eye on additional indications as we move forward.
Back in October we talked about the Phase IIa trial in congestive heart failure patients treated with CVT124. These were announced by our partner, CV Therapeutics. As you know, congestive heart failure affects millions of the people in the U.S. alone, and is ultimately fatal for most. Current therapy focuses on relieving stress in the heart, and there are well documented weaknesses in the available diuretic treatments which work through the kidneys.
The results of our Phase IIa study confirm that CVT124's profile as a potent diuretic with potassium sparing characteristics. A small subset of this trial which we hadn't completed in October, was designed to measure the renal protective effects of CVT124. Now we're talking about a small sample of patients, but the observed improvement of kidney function was really very encouraging. We're going to pursue this study, obviously in more patients and move into a broader Phase IIB study which will compare CVT124 in a head to head comparison with Lasix.
Our CD40 Ligand program, Phase I study in ITP, idiopathic thrombocytoperic purpura, this is now complete and we're analyzing the data. You'll remember the CD40 pathway operates in a critical pathway necessary for T-cell, B cell communication, obviously influencing antibodies as well as a T-cell stimulatory component that allows us to begin to consider a pure T-cell mediated diseases. Our initial trial was conducted in patients suffering from ITP, an anti-platelet autoimmune disease which is probably solely an antibody mediated process.
We will be looking, at Phase II, with other indications including lupus nephritis, and the treatment of patients with Factor 8 inhibitors. I'm not sure we've done this in the past, but we continue to be excited by our pre-clinical result in non-human primates on transplantation. We've had a series of studies over the last year or so involving islet, heart, and kidney transplants; each individually treated with monotherapy with anti CD40 Ligand, and you might be aware that our collaborators at the Bethesda Naval Hospital published a paper on the renal transplants late last year. It's going very well. We're very excited and continue to be enthusiastic about that potential.
With AVONEXr, in development for non-MS indications, we're continuing our Phase IIA trials in patients with glioma, fatal tumors of glial cells in the brain; and again, small numbers of patients being treated at this juncture. It is an investigator led trial, and we'll continue to support that program. In addition, next quarter we will begin a study of AVONEXr in patients suffering from ideopathic pulmonary fibrosis which you know is a debilitating and ultimately fatal inflammatory disease of the lungs.
You've heard Jim talk about our results with Gelsolin. Let me just simply say that the results are inconclusive. It is possible that we see some activity at the higher doses in a subset of patients, but when you put all patients together, as he says, it does not knock your socks off.
In summary, we're really quite pleased with the progress we've seen in these early stage results from our clinical work and we look forward to learning much more about these things in the coming year. I'll turn the call back to Jim Tobin.
JIM TOBIN: Thank you, Joe. I, just by way of summary, I basically would like to say the following. If you think back a year ago, we had AVONEXr approved in the U.S., now it's U.S. and Europe. We had 21,000 patients in the U.S., now it's 31. We had 50% market share then. We've got 60% now. At that time we had maybe one drug plus AVONEXr in people. Today's that's four or five plus two more to come from partners. At that time we had no data that we could talk about. It was essentially all on the come. Today we have data that, for the most part, is promising in most of the things that we're looking at. We were facing, a year ago, a situation where we were about three years away from our royalty stream beginning to decline.
Today we've had hepatitis B extensions in Europe that at least help some. We've got Hirulogr outlicensed that could generate a royalty stream that could replace some of what we lose. We've got VLA4 outlicensed that could replace some of what we lose, and we have some others still to come; events that will further help us along these lines, to the point where I've stopped worrying at this juncture about our royalty decline in the year 2000 and moving forward to other things.
The point is, that I think we've made an awful lot of progress in the past year, and I hope you agree. Let me turn it back to John.
JOHN CONLEY: Okay, thank you. We're going to open this up for questions now, and before I do, just a couple of comments. One of the practices that Biogen has pursued in its investor relations which I intend to continue because I think it's a good one, is our company's reluctance to provide financial projections for the future. I think there are a lot of good reasons for that reluctance, and I'll just let you know that and please keep in mind as you ask your questions. Since we want to have everybody have a chance to ask questions and we can answer all of them, we'd ask if you'd please, out of consideration for each other, just limit your questions to one each. With that we'll take the first caller, please.
OPERATOR: Thank you Mr. Conley. Our first question does come from Robert Leboyer of Brown Brothers.
ROBERT LEBOYER: Hello. I have a question on what kind of growth you're expecting ahead in view of the fact that the domestic growth and the number of new patients added has been relatively flat for the past two quarters. Secondly, when the patients are coming on, what kind of profile do they have as far as whether they are newly diagnosed patients, drop outs, or previous switchers.
JIM TOBIN: Let me address the second part first. When we first launched, of course, a large proportion of the patients we were gaining were Betaseron switchers. At this juncture, I think it's fair to say that the bulk of Betaseron patients who intend to switch have switched, so that source of patients has diminished over the past-how long have we been on the market? Twenty (20) months or so. So the source of most of our patients, at this point, are naives; that are being treated for the first time. We have found that they have been more and more recently diagnosed. In other words, they are earlier and earlier into their disease course as time goes by. As far as projections go, we are continuing to add patients. Remember, we are-I'm acutely aware of this.
I don't know if you guys keep track of this stuff the way I do, but Betaseron added patients for the first year, and then their net patient total began to decline in the fifth quarter they were on the market which was quite a while before we ever showed up. Alright. We are now into our seventh quarter and are still adding net patients, so I think it's fair to say that we expect that to continue for a while yet. It won't go on forever. Eventually you run out of patients, but we are continuing to add patients much longer than the other guys did. In Europe, of course, there is much more of a green field there. Many, as many patients as there are in the U.S., but many fewer being treated. So we have a lot larger naive population there to go after.
ROBERT LEBOYER: Do you see much growth in the naive population in the coming years?
JIM TOBIN: Well every year you get about 10,000 people who have their second exacerbation and are then classified as clinically definite MS. So you have that source of new patients. You also, as your base gets bigger, you have drop outs that occur. There is a netting effect that occurs there. The other piece of it is, that as neurologists get more and more comfortable with what's going to happen when they put a patient on AVONEXr. There is a natural market expansion that seems to be occurring that is, perhaps, definitional, but we seem to be-because people are comfortable with the drug, we seem to be creating market growth in excess of what the sheer numbers would indicate.
ROBERT LEBOYER: Okay, thank you.
OPERATOR: Thank you. Our next question comes from Alex To of DLJ.
ALEX TO: Hi. It's Alex To at DLJ. Question on the LFA3TIP. You alluded to you're looking for 50% improvement in psoriasis patients. What exactly are you looking at? What kind of end points was that, and can you give us a bit more color on the clinical trial?
JIM TOBIN: What the end point is, is a so called PASI score which is a composite score of how much surface area is involved to what degree; how bad is your psoriasis. It's a standard score. People are very comfortable with it. All psoriasis trials use that as an end point. What we were looking for was a 50% improvement in your PASI score in at least half the people, because not everybody responds. What we saw was a lot more than half the people responded, and those that responded, responded a lot more than 50%. We're still pulling the data together because what has happened here-what we saw is that nothing much happened the first couple of shots. Around week 3 -- these were weekly shots for 8 weeks. Around week 3 we started to see improvement, and you saw that through the 8th week. We then withdrew the drug and people continued to get better. We're waiting for them to stop getting better, and see at what point do they start to turn around. That point hasn't happened yet, so we're still collecting the data.
ALEX TO: Because you're blocking the T-cells, I guess-the delayed reaction to it. T-cell differentiation. But the open label trial you already-to be comfortable to say that there is a positive result there.
JIM TOBIN: Yes. It's real easy to see what's going on. That's one of the reasons why we did psoriasis in the first place. This drug was controversial in the company. There were smart people that said it would work and smart people that said it wouldn't work. I didn't want to have to deal with surrogate markers and do they really matter and all that stuff. So we went into psoriasis where it's real obvious whether or not you're getting a result and we're getting a result.
ALEX TO: Thank you.
OPERATOR: Thank you. Our next question comes from Peter Drake of Vector Securities.
PETER DRAKE: Good afternoon. My question relates to specifically to Nova Factor, Jim. Can you help us understand, from your perspective, what the impact of Nova Factor was in the U.S. for you in 1997, and what kind of expectations you have for their assistance in your overall marketing strategy for 1998; and then could you help us understand something that I was a little surprised at and that is that the IMS data would indicate that you're at a 60% market share, but it was my understanding that Nova Factor was responsible for as much as 15-20% of total sales which are not picked up by the IMS script. So is the 60% market share really real? Isn't it higher than that given the impact of Nova Factor?
JIM TOBIN: Let me take it in pieces there, Peter. When you look at the IMS data, IMS data covers, as far as I can tell, 100% of what Betaseron is doing. About 40%, maybe 60% of what Copaxone's doing, and about 85% of what we're doing, so you have to gross up Copaxone and you have to gross up Biogen. Alright, so that adjusts the whole thing. When you make those kinds of adjustments then you get to the 60% kind of number. That's how the math is done. You-we're underreported, but Copaxone is more underreported. Alright. So that's the answer to that one. As far as Nova Factor itself goes, they've been a very good partner in a number of ways; one of which is that the survey data we have says that the retention rates, the dropout rates at Nova Factor are lower than any of the other channels. We're anxious to see as much of our business go through Nova Factor as the patients want to have happen that way; because they are such good partners and because we do get to keep them longer when they go through that channel.
You're in the ballpark when you think 15-20% of our total goes through there. I've forgotten, actually, the exact number but it's certainly in that range as we speak. It has been creeping up over time. We expected it would go up faster, but we keep gaining patients in the other channels too. I guess that's sort of good news/bad news.
PETER DRAKE: And expectations for `98?
JIM TOBIN: I would expect that more and more of our business will go through them.
PETER DRAKE: Where we should expect greater retention and perhaps even a better compliance?
JIM TOBIN: Yes. Yes, compliance is good to start with so it's hard to get much better. Okay. But retention is where you see the difference, and so we're anxious to see as much of our business go that direction as possible.
PETER DRAKE: Thank you very much.
OPERATOR: Thank you. Our next question comes from Tony Butler of Lehman Brothers.
TONY BUTLER: Could you perhaps define the DSOs a little bit better and total days out.
JIM TOBIN: I've got a whole stack of information here. I'll have to find the DSO, but it's-last quarter was something like 53 days and this quarter is something like 49 or 47 or something like that.
TONY BUTLER: That's a good ballpark. Thanks a lot.
JIM TOBIN: Thank you. Our next question comes from Edmund Debler of Mehta Partners.
EDMUND DEBLER: Congratulations, Jim.
JIM TOBIN: Thank you.
EDMUND DEBLER: Nice quarter and nice trends. Let's focus on AVONEXr and the whole market. What are your thoughts and plans with regards to Rebif from Serono, and also what do you see in terms of the possibility of Serono getting into the U.S. market.
JIM TOBIN: As far as the U.S. market goes, with what we've seen so far, their clinical data is certainly no better than ours, and their low dose isn't as good as ours. So they've got nothing to offer there. Their safety data isn't as good as ours. They have injection sight reactions and antibodies well in excess of anything; multiples of what we see. So they have nothing that they can bring to the FDA that would justify another orphan drug on a molecule that is so close to what the FDA has already approved in AVONEXr. So I'm not concerned about their even getting approval in the U.S.
In Europe they are going to get approval and they'll probably be on the market before mid-year, and I expect to do very well against them because I've got better data. I've got a better dosing regiment. I've got lower antibodies, and I've got lower injection sight reactions. Other than that, they are a pretty good competitor.
EDMUND DEBLER: Thank you.
OPERATOR: Thank you. Our next question comes from Doug Lind of Morgan Stanley. |
