Biogen Inc. (BIIB) Q4 2012 Earnings Report, Transcript and Summary

Claudine Prowse George A. Scangos - Chief Executive Officer and Director Tony Kingsley - Executive Vice President of Global Commercial Operations Douglas Edward Williams - Executive Vice President of Research and Development Paul J. Clancy - Chief Financial Officer and Executive Vice President of Finance

Mark J. Schoenebaum - ISI Group Inc., Research Division Eric Schmidt - Cowen and Company, LLC, Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Yaron Werber - Citigroup Inc, Research Division Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division Ravi Mehrotra - Crédit Suisse AG, Research Division Robyn Karnauskas - Deutsche Bank AG, Research Division Matthew Roden - UBS Investment Bank, Research Division Michael J. Yee - RBC Capital Markets, LLC, Research Division Rachel L. McMinn - BofA Merrill Lynch, Research Division Terence C. Flynn - Goldman Sachs Group Inc., Research Division Marshall Urist - Morgan Stanley, Research Division

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Biogen Idec Fourth Quarter and Year-End 2012 Earnings Conference Call. [Operator Instructions] Claudine Prowse, you may begin your conference.

Thank you, and welcome to Biogen Idec Fourth Quarter 2012 Earnings Conference Call. We issued a press release this morning providing earnings results for the quarter and full year 2012. The press release and related financial tables are available on our website under the Investors section as are the slides that follow today's call. I would like to point out that we will be making forward-looking statements, which are based on our current expectations. These statements are subject to certain risks and uncertainties, and actual results may vary from our expectations. I encourage everyone to consult our SEC filings for additional detail. On today's call, I'm joined by our Chief Executive Officer, Dr. George Scangos; Tony Kingsley, EVP of Global Commercial Operations; Dr. Doug Williams, EVP of Research and Development; and our EVP of Finance and Chief Financial Officer, Paul Clancy. We'll also be joined for the Q&A portion of the call by our Vice President of Medical Affairs, Dr. Kate Dawson. I will now turn the call over to George.

Thanks, Claudine, and thanks to all of you for joining us today. 2012 was a successful and exciting year here at Biogen Idec. We exceeded our financial goals for the year, enjoyed good performance from our products, made substantial progress moving BG-12 and our hemophilia compounds towards hopeful approvals and launch and substantially improved the quality and quantity of our early-stage pipeline. So following my brief opening remarks, Tony Kingsley, Doug Williams and Paul Clancy will review the results and achievements of 2012 and how they position us for 2013. Doug will also review the positive pivotal trial results of PEGylated interferon that we announced last week. So 2012 revenue and earnings were strong and exceeded our expectations. Revenue was $5.5 billion, and non-GAAP earnings were $6.53 per share, a strong performance in a year where we invested heavily to advance the late-stage pipeline and prepared for multiple product launches. As Paul will outline, the good performance was the result of a mixture of positive and negative factors, but the bottom line is that the products continued to do well. AVONEX, after years of declining market share, had a turnaround year in 2012. The introduction of the AVONEX PEN, the first intramuscular autoinjector and the AVOSTARTGRIP, a titration kit to help reduce the frequency and severity of flu-like symptoms, together with great execution on the part of our commercial team, gave AVONEX new vibrancy, and that resulted in a turnaround from losing to gaining market share within the ABCRE class. 2012 was also a good year for TYSABRI, as we ended the year with 7,700 more commercial patients on drug than we started. With the availability of the test for JC virus antibodies, TYSABRI's use is shifting into the JCV-negative portion of the population, and it is getting earlier use…

Thank you, George. Our core MS franchise continues to perform well with our fourth quarter MS revenues increasing 8% year-over-year while full year MS revenues grew 9% versus the prior year. AVONEX continues to perform well, gaining global market share in 2012 within the ABCRE injectable class and maintaining a strong front line position in MS. We believe this continues to be driven by 2 things: market uptick of the AVONEX PEN, which brings real convenience advantages to patients and strong commercial execution in a promotionally sensitive segment of the market. In the U.S., despite new competition entering the MS market, we ended the year with more U.S. AVONEX patients on therapy than we started, providing evidence that our commercial strategy is succeeding. Outside of the U.S., AVONEX remains the leading MS therapy, as we continue to increase our leading market share position. Unit growth in these markets was strong. Now moving to TYSABRI. Patient growth was solid during the fourth quarter, as we added another 1,500 new commercial patients, and for the year, we added approximately 7,700 commercial patients in 2012. TYSABRI's solid growth trajectory continues to be driven by its powerful efficacy. We continue to advance the science in understanding and stratifying TYSABRI's benefit-risk profile and build physician confidence in the therapy. As a result, TYSABRI continues to gain market share in the global MS space. We saw a continued evidence of earlier adoption in the JCV-negative patient population throughout the year. With growing JCV testing volumes and now the majority of patients who are starting TYSABRI treatment are JCV negative, leading to what we believe will be longer-term retention rates over time. Now moving to our anticipated 2013 product launches. First, as some of you may already be aware, we now have a brand name for BG-12,…

Thanks, Tony. Let me start by thanking and congratulating the R&D and regulatory organizations for all their efforts and success in 2012. It's been a year of significant accomplishments spanning the entire pipeline from research to marketed products. In 2012, we expanded the U.S. TYSABRI label to include information about JCV antibody risk stratification and achieved FDA approval for both the AVONEX PEN and Titration Kit. We completed an NDA filing for TECFIDERA with FDA and an MAA file with the EU regulatory authorities ahead of schedule and have now filed with Canada, Switzerland and Australia for approval of TECFIDERA in relapsing forms of MS. Our hemophilia team reported on successful Phase III clinical studies for Factor IX and Factor VIII with our long-lasting versions of those molecules. These programs are the first true innovation for patients with hemophilia in more than 15 years. We reported Phase III data from our dexpramipexole study in ALS, which unfortunately was not positive but generated important baseline data on ALS patient diagnosis and clinical progression, which will be important for designing future trials. And just last week, we reported on positive Phase III data with peginterferon, which I'll spend more time discussing later. All in all, it's been a remarkable year of progress with our late-stage pipeline. It's also noteworthy that our early-stage pipeline advanced as well with enrollment of first patients in our Phase IIa study of STX-100 in IPF, the Phase IIa study of anti-LINGO in acute optic neuritis and our Phase IIb study of the anti-TWEAK antibody in lupus nephritis. We also began enrolling patients in the Phase Ib IIa multi-dose study of Isis-SMNRx for spinal muscular atrophy. We made significant changes to our research organization to promote discovery and validation of novel drug targets and key high-profile academic collaborations…

Thanks, Doug. Our GAAP diluted earnings per share were $1.23 in the fourth quarter and $5.76 for the full year. The primary differences between our GAAP and non-GAAP results for the fourth quarter are outlined in the earnings presentation and include $49 million related to the amortization of acquired intangibles, $4 million in fair value adjustments for contingent consideration and $2 million related to stock compensation expense. This was partially offset by the tax impact on these items. Our non-GAAP diluted earnings per share in the fourth quarter were $1.40. This includes a discrete tax item, which impacted Q4 EPS by approximately $0.12. I'll explain this in more detail in a few minutes. Let me now walk through the financial results. Total revenue for the fourth quarter grew 7% to $1.4 billion and grew 9% for the full year to $5.5 billion. Q4 AVONEX worldwide revenue was strong, growing 7% to $753 million and grew 8% for the year to $2.9 billion. Both Q4 and full year worldwide unit model volume increased 4% versus prior year. In the U.S., AVONEX grew 11% in Q4 to $467 million, and for the full year, U.S. AVONEX revenues increased 10% to $1.8 billion. Inventory in the channel in the U.S. ended at just over 1.7 weeks, a slight decrease compared to the prior quarter. Internationally, Q4 AVONEX revenue was $286 million, an increase of 1% compared to the fourth quarter of 2011. Foreign exchange weakened AVONEX revenue by $10 million, which was offset by a $3 million hedge gain. For the full year, AVONEX international revenue increased 6% to $1.1 billion. Foreign exchange weakened AVONEX revenue by approximately $69 million. This was offset by a $25 million hedge gain as compared to a $31 million hedge loss in 2011. TYSABRI worldwide end market…

Okay. Thank you, Paul. This is a remarkable time for Biogen Idec. In 2012, our commercial, regulatory, development, clinical and research teams achieved significant milestones that positioned us for sustained near- and long-term growth. As I think about 2013, we believe that the underlying drivers of growth continue to look robust. Current products continue to provide a solid business foundation, and we expect continued performance in 2013. AVONEX is now gaining market share in the U.S. and internationally within the ABCRE class. And as Paul -- as Doug reported, we recently had the results for our peginterferon trial, which showed solid efficacy. We plan to launch peginterferon with the disposable subcutaneous autoinjector to improve patient convenience. This potential best-in-class profile should enable us to further expand our share in the ABCRE segment. We continue to be optimistic about the prospects for TYSABRI. The JC virus antibody test seems to be paying off now, and we think TYSABRI has substantial growth potential. We're entering an era, where subject to FDA approval, we hope to have several new product launches: TECFIDERA, our hemophilia compounds and PEGylated interferon. Behind those is a pipeline of very promising compounds. Next year, we'll have a readout for daclizumab HYP, which has the potential for once-a-month dosing for the treatment of relapsing MS patients. In 2015, we'll have a readout for TYSABRI in secondary-progressive MS. If the data are positive in this indication, it would be a great service for those patients and a new market for TYSABRI. SPMS patients make up approximately 35% of the total MS population. And then potentially, there's a readout for ISIS-SMNRx in 2016. So over the next 3 years, we expect to have proof-of-concept data for multiple compounds including anti-LINGO for MS, ISIS-SMNRx for SMA, STX-100 for IPF, anti-TWEAK for lupus,…

[Operator Instructions] Your first question comes from the line of Mark Schoenebaum with ISI Group.

As you know, it's our job in the investment community to worry about the unlikely, so with that in mind, let me ask the following questions, if you don't mind. Could we maybe get your updated thoughts on the potential impact of the PML cases linked to FUMADERM in Germany on your BG-12 regulatory applications? And also I think there is a recent blog post by Dr. Gold which seemed to suggest that -- it seemed at least to suggest that some BG-12 patients, he thought, should be -- should have their white blood cell counts monitored. I just -- I'd love get your thoughts on that. And then finally, what do you expect the FDA and EMA to do with the BG-12 preclinical kidney cancer signal that you disclosed many years ago? I remember you disclosing it many years ago but which Teva referred to in its recent CP. And then I'll get back in the queue. I really appreciate you entertaining my paranoid delusions.

Thanks, Mark, and let me just point out that it's also our job to worry about unlikely events, so -- but let me take those 2 things 1 at a time, and this is like the guest who won't leave the party, I guess. But anyway, look, let me take the PML stuff first. We talked about this at JPMorgan. So let's first talk about BG-12, right? It's been studied in 3,600 patients including a long-term extension study, 0 cases of PML, no opportunistic infections, looks great. With FUMADERM, in 180,000 patient years, there have been 3 cases of PML, and there's 1 additional case that's been reported in a patient taking formulated fumaric acid esters, right? So lump those together, you got 4 cases in 180,000 patient years. So the first thing to say is that is kind of the normal rate that you would expect to see in a population of patients with an autoimmune disease. There's nothing alarming about that role rate. Two of those cases are heavily confounded, patients taking other drugs, having other risk factors for PML. Two of them, which I think are the 2 patients to which Dr. Gold alludes in his post last week, were lymphopenic for sustained periods of time. Lymphopenia is also known to be a risk factor for PML. So the 2 cases reported last week are not new cases. They're 2 of the 4 cases that are already known. I -- there, he mentioned that they are going to be published in a major medical journal. I think that's true, but I just -- I mean, glad you asked the question because we can make it clear here. Those are not new cases. These are the old cases. And the rate's low. So that's all there is, I…

Your next question comes from the line of Eric Schmidt with Cowen and Company.

Well, maybe best for Paul. You laid out a lot of factors on BG-12 for us to think about in terms of how to model the launch. When you look at the analyst models out there, maybe specifically consensus of about $330 million for the year, are you getting the sense that the Street's thinking is aligned with your own? And if not, where do you think there's disconnect?

Yes -- no. Thanks, Eric. I mean, I think the -- what we've -- I've been working to try to do is just try to point out the fact that post the PDUFA delay last year, I think there were a fair amount of models that actually didn't adjust for the fact that it's 9 months in the United States as opposed to 12 months. And then I think the other key thing is that compliance for BG-12, we just actually don't know. So we're kind of being a little bit cautious that we're looking at twice-a-day drugs as opposed to once-a-day drugs kind of the benchmark being kind of Gilenya, that there's a good chance that compliance coming out of the gates may be a little bit lower. We're going to be putting in place a lot of programs, pharmacy programs and the like to make sure over the medium term that patients are taking the therapy appropriately. So falling short a little bit of exactly asking -- answering your question on the number, the spot number, just kind to want to really point that stuff out, it's obviously a range. And I think that we'll know that as we get into it. We are very comfortable with the longer-term projections, which also obviously is a range. But just for this year, I just want to try to really point a couple of those factors out.

Your next question comes from the line of Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: A question on the ADVANCE trial. Obviously, the Q2 and Q4 week achieved the endpoint, but there were some differences between the 2 on everything but EDSS, so maybe help us with how you see Q4 week playing out commercially versus Q2 or other injectables. And then will there be an efficacy measuring going out to 2 years that possibly that you could see a catch-up effect with a month ago [ph]?

Yes, Geoff, it's Tony. Thanks for the question. So look, from a commercial standpoint, our thesis on the injectables class has been that as other products enter and the efficacy differences get compressed a little bit, it moves to convenience. Look, both of these are good news from a convenience standpoint. It's early days, and I think we have some work to do to think through the -- sort of the more tactical marketing strategy on 2 versus 4. There's -- the good news is they're both good. Disability is obviously encouraging to have, and that can be a differentiator, I think, particularly with payers who are particularly interested in that. Doug, I don't know if you want to talk about the 2-year.

Yes, in the 2-year data, because of the way the study is designed, the patients who are on placebo roll over to active drug. So what we'll really be looking at there is primarily tolerability-related issues in the second year. You really lose your comparator group, if you will, just based on the way the study is designed. So primarily we'll get some additional tolerability data. We'll obviously be looking at sort of long-term efficacy measures but have less power to say things just based on the fact that the placebo patients have now been rolled over to active drug.

Your next question comes from the line of Yaron Werber with Citi.

So just got 2 questions, guys. One -- and I don't know if you can answer it, maybe just kind of philosophically, when you look at Aubagio, it's around $40,000 per year, and with the recent price increase of Gilenya in the U.S., it's around $60,000. So the question is BG-12 really has sort of a great profile between the 2 drugs and can support premium pricing, certainly at the higher end of Gilenya, but then you're probably worried about market access. So just give us a little bit of a sense to how you think about that range and then any sense of how should we think about the gross to net discounts in this market for the oral drugs. And then just secondly, if you don't mind for Tony, TYSABRI, what -- how should we think about patient starts from now just given the deceleration quarter-to-quarter?

Yaron, it's Tony. On pricing, I think Aubagio's $45,000 last I looked. I think you said $40,000. Look, there is a range between that and where Gilenya is today. If you look at where the ABCREs are, they're mostly pretty clustered in that category. We've said before, whereas we think about the BG-12 pricing strategy, we think it's got a good profile. We're going to do what we can to capture value for that, but we're going to be thoughtful about not creating lots of barriers for us. Let me touch on TYSABRI, and then Paul can maybe take the gross to net question. We feel good about the pace on new patient starts. It's a little slower in the second -- in the fourth quarter. If you look, that's not unusual. There is some seasonality in the TYSABRI business. I think in the past, we have seen some -- Q4 particularly around December is a little softer for patient adds, but we're continuing to see risk stratification take hold and the benefit-risk profile moving. So as I think we've often said, we didn't view risk stratification as a massive inflection since there was a lot of understanding of that through the STRATIFY clinical trial, but it's a nice steady march of continuing to move physician confidence. And with that, we think patient adds. Paul, you want to talk about it?

Yes. No. Great question, Yaron, with respect to gross to net, and clearly, we're talking about the United States. The gross to net -- few people have pointed this out, that it has increased over the last couple of years, so that's always good to be mindful of. For us and for our category, multiple sclerosis, it's a function of private payer rebates, which really are actually haven't meaningfully increased and then government rebates, which while it's a relatively lower percentage of the mix for us, it actually can -- it plays a factor into the gross to net dynamics. Certainly, that's particularly true for AVONEX. That's true for TYSABRI. That will actually, in the early days, obviously be less true for BG-12 because that's more of a function of historical pricing vis-à-vis kind of cost-of-living adjustments if you will. So it's good thing to be mindful of, but I think it's still quite manageable.

Your next question comes from the line of Geoff Porges with Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: Appreciate the transparency. Just a question, Paul, about margins. Your R&D looks like it's coming down next year. You've been around -- hovering around 24% the last couple of years, and you clearly had to pull back or been able to pull back on spending on dex. Can you give us a sense of what the sort of thing you might be looking out from a business development standpoint given that it looks as though you've got 1 point or 2 of SG&A spend that you could potentially deploy into another late-stage program? Or is that an incorrect assessment?

I'd say that the dynamics of 2013 are, Geoff, pretty close to what you point out in terms of we expect to get a little bit of deleverage in SG&A, call it, 150 to 200 bps of deleverage as this is a critical year and a very unique year and a great year for Biogen Idec with respect to kind of the bolus of potential launches. R&D, we expect to get to more or less make up that point, those 150 to 200 basis points. And actually, that has been all along kind of the thinking, as the maturation of the late-stage programs get through kind of the big spending. They -- as you move late stage and finish your trial as we've talked about in the past, it's not like the spending disappears. The exception obviously is dexpramipexole. We expect just very small amount of spending in 2013, and that is really kind of a big driver on the 2012 to 2013 kind of leverage point. We will continue to look at business development deals in R&D. Our current guidance doesn't include anything real meaningful in that, but we feel that we have an obligation to continue to look at those things and cover the cost of those if they're very manageable and very, very small. And that continues just to be real important strategically to build up the early- and mid-stage pipeline to get a real longer-term sustainable growth for the company. And it's essentially part and parcel to what we do here, and it's been proven to be pretty darn effective. Those -- anything meaningful on that front, we look at on a -- the merits of the molecule, the merits of the deal, less about kind of what does it do for the kind of quarter-to-quarter impact on the P&L. And we have to solve that after the fact.

Your next question comes from the line of Ravi Mehrotra with Crédit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: Two-part question on TECFIDERA. Paul, you've mentioned twice now some caution around the BID dosing compliance. Is there any studies or real-world experience which brings you to that cautionary note? And related to that, turning to the GI and flushing side effects, which you flagged openly, can you remind us how you aim to manage that in the early days of the launch, what you're hoping to get within the label in that regard and remind us of the studies to support those steps?

Yes, let me start with the first part, Ravi. Well, first of all, nice job on the pronunciation of TECFIDERA. Look, Gilenya, as you know, they've reported kind of into the 90 percentages on compliance. We -- we're looking hard at this, and there's lots of studies of more than a handful of comparable twice-a-day therapies that actually get closer to 70% compliance. So that's a big -- in the world of revenue and P times Q, that's actually a big swing, and that's a little bit about what we're being cautious of. Obviously, our job is to work hard on that. It's the right thing to do for the business. More importantly, it's the right thing to do for patients so -- but that gives you a little bit of kind of the swing factor that could play. Doug?

And in terms of what we'll have available to help physicians manage patients through, we're really talking about the first month here where both the flushing and the GI tolerability effects seem to manifest themselves, and they tend to sort of self limit after a month. But we will have patient support services available to be able to sort of advise and counsel if you will. As you know, we've done some studies with aspirin that seem to have a meaningful effect on flushing. Those won't be in the label, but we're continuing to do some additional work. Those studies have been published. They've been talked about at some of the major neurology meetings, so that information is obviously out there and available for physicians. And then as far as the GI tolerability, we're also looking at the ability to titer the dose up to see whether or not that has a meaningful impact for those few patients who do experience significant GI tolerability effects so -- and we'll have patient information. We won't have anything in the label initially, but we're continuing to do studies to be able to understand and better manage that.

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank.

I guess I'm thinking about PEG-Avonex and the data, you've said that you want to be the market leader amongst interferons, and I'm wondering whether or how you're thinking about peginterferon. Do you think that peginterferon could be the market leader amongst the interferons? And then second question related to that is how do we think about gross margins? You have a lot of new products coming online and in particular, even if peginterferon makes it to market, how do we think about margins versus current margins?

Robyn, it's Tony. So look, we're obviously thinking about interferon as a franchise over time, and we'll think about the value proposition of PEGylated interferon in that context. Again, our theory is convenience is an important differentiator and an increasingly important differentiator over time. We have a strong value proposition with AVONEX and the PEN today, a subcutaneous 13 or 26 times per year injectable is very attractive. So you ask could it be the leading interferon. The question I would ask is why couldn't it be the leading injectable. If you look at 13 or 26 times a year with the kind of data we're talking about relative to 365 times a year, also subcutaneous, it's a pretty powerful value proposition.

And Robyn, I think not too much to report for 2013 on gross margins other than what's in the guidance. Over the longer term, the gross margins are quite healthy now as you know. Over the long term, we actually think we can creep it north of that modestly. BG-12 is a very good kind of cost of goods sold. We expect over time TYSABRI, with bringing on Denmark, that we can move gross margins a little bit more favorable in that dimension. So I think that,that actually over time is a modestly improving story.

Your next question comes from the line of Matt Roden with UBS.

Paul, first in terms of the above consensus revenue guidance. The past couple years you've been pretty conservative on this line versus what you've actually delivered, and I was wondering if there's anything different in your process this year as you came up with your 10% year-over-year growth on revenues and whether or not there are any particular lines, line items in your forecast that were particularly different than consensus. And then secondly, for Tony on PEG-Avonex, once that is available, can you talk about how your promotion strategy for the interferon strategy will shift? Is it important to switch the current AVONEX users over to PEG-Avonex? Or is this more about a strategy to compete for new patient starts?

Yes, thanks, Matt. It's great and probably helpful in terms of clarifying. The consensus is essentially what our plan is for the top line, so I mean, I think I wouldn't stretch it and to say that we've got a lot of conservatism at all built into that. It assumes a little bit of pricing action in the U.S., yet modest. It assumes that we'll solve AIFA at some point during -- the impact during the year. That's not the most meaningful assumption that we have, and we certainly are working hard to do that. If we don't, it's still manageable in the bottom line. It doesn't -- we don't have an assumption in terms of the top line with respect to legislative changes that many of you have or -- and all of us are watching. Dual eligibles is actually a meaningful impact for us on the AVONEX business, and our kind of top line outlook assumes very comparable foreign exchange. So I think it's a pretty fair kind of look at what we think the business is. I would not guide at all to stretch that much further at all.

Matt, it's Tony. In terms of the kind of the strategy for PEGylated interferon, I'd say TBD. Clearly, you'd want to think about capturing new patients with that. We don't have the label, et cetera. Yes, that's a ways off. The pace at which you think about converting a subject to a lot of different factors, well-controlled patients, do you want to move them off therapy, what data will physicians want to be comfortable doing that. There are payer dynamics associated with that. So lots to work out on that front, but again, from a franchise standpoint, this is good news.

Your next question comes from the line of Michael Yee with RBC Capital Markets.

A question for Dr. Dawson or Tony. So you guys have launched more MS drugs, obviously, than anyone, but when you look at the launch of TECFIDERA this time around and you look at the reimbursement, the payer landscape and different EU pricing bands, are there things today, particularly o U.S., that are different than a couple years ago? How are you thinking about that as we model or you model internally?

Yes, good question, Michael. So look, the couple of macro things that are different is the class is getting more crowded, right? There are more -- there have already been more entrants. Anticipate more entrants. So payers around the world are obviously focused on a class because there are more things to look at. The second is I think Paul has been pretty transparent. The European pricing environment has been very difficult in the last couple of years, and we think there's going to continue to be meaningful pressure on prices in general as the European economy continues to struggle. So if you think about it, the differentials between U.S. pricing and largely, European pricing are getting greater than they have, and both those factors seem to be moving in the direction that would increase those over time.

Your next question comes from the line of Rachel McMinn with Bank of America Merrill Lynch.

I just wanted to clarify, Paul, a couple of things you said. On your AVONEX guidance, should we look to the 7% to 8% sales growth we've seen over the last 2 years and think about that as an accurate number to go forward? Or just you actually mean that sales would be flat? And then on BG-12, with your comment about Germany, will you be able to launch rapidly after approval? Or is there just a prolonged period where we should we be thinking about revenues more weighted towards the back half in Germany for TECFIDERA?

Yes. No. Rachel, thanks for the clarification. No, AVONEX we actually think is a pretty comparable year-over-year number. So more flat on a year -- from a total revenue perspective. Tony?

Yes, from a launch standpoint, we think mechanically we should be able to launch relatively quickly in Germany. As I think you know, the AMNOG process, which is the reimbursement process in Germany, allows you free pricing for, I think, the first 12 months. So you can get to market while you are negotiating that, and then you may be subject to some adjustments to that later, but no, no barriers to keep us from getting on the ground relatively quickly.

Your next question comes from the line of Terence Flynn with Goldman Sachs.

Was just wondering in terms of PEG-Avonex, can you make any comments about the tolerability of that drug relative to weekly AVONEX? And then on the patent side, anything else beyond the patent that you mentioned today that we should think about for BG-12?

This is Doug. I'll go ahead and speak to the tolerability issue. I think what we've reported thus far is that tolerability issues are pretty comparable to what's been seen with other interferons. There were some flu-like symptoms that were seen, some injection site reactions. We'll actually be reporting a lot more information at AAN. We're still in the process of doing some of that analysis work to look at things like duration of flu-like symptoms and don't have that data yet. But what I can say is that discontinuation rates were very low in the study, which would suggest that the flu-like symptoms, even if patients had them, were not an impediment to them staying on the study drug through the conduct of the clinical trial. So we feel like we've got a molecule that has a very solid efficacy profile and one that, tolerability wise, looks not dissimilar from the existing AVONEX molecule. But we'll have a lot more data for you at the AAN.

Yes, on the IP front, you can assume that there are other things that we are doing. This is obviously a very important franchise for us, and we're working on a number of factors. This -- the 480 patent is pending in the EU as well. And so we haven't spoken too much publicly about what else we're doing, so we'll leave that alone for now.

Your last question comes from the line of Marshall Urist with Morgan Stanley.

So a couple of things. Number one, Paul, just to clarify, I know this has been asked a couple different ways but just to be absolutely clear on guidance, so it sounds like from what you're saying, if you're guiding to 10% revenue growth on flat AVONEX and flat RITUXAN, then is it as we all try and kind of back into the TECFIDERA number, then it's basically just TYSABRI, whatever TYSABRI growth, whatever the settlement in Italy is worth incrementally? Are there -- and then so nothing else, it sounds like from your comments it's just those plus TECFIDERA to get to the 10%. And then second, just as we think about patient flow models, it sounds like you guys are thinking the discontinuation rates early on will be higher than what we saw in Phase III and then eventually that should settle or improve as the launch moves on. And then, Paul, just lastly, what are your updated thoughts on accounting also for the BG-12 milestones and royalties?

Yes, let me take the first and third. Probably too much of a shorthand everybody's jumping to already. So we actually do think actually TYSABRI continues in a growth year. So growth there, as well as kind of AIFA, our kind of royalty line and corporate partner revenue line actually expands a bit. So I think we're probably being a little bit more cautious and believe to be more cautious on BG-12 than kind of what -- and that has got nothing to do with the longer-term prospects of what we think about the drug over the long haul, just kind of the dynamics of the first year launch. With respect to -- I'll jump to the third part of your question, Marshall, which we expect to the accounting for the BG-12 contingent payments, no change. So that was -- we're kind of being very, very consistent with the way we've treated purchase accounting that it does not impact the non-GAAP P&L, but it certainly is something to be accounted for. It impacts the cash flow statement. They are very, very meaningful, so certainly want to be very cognizant of them.

Marshall, it's Tony. In terms of the actual real-world experience with discount rates and compliance versus other things like that, we don't know until we get into the real world. We think we have an idea of where that will come out, but we're going to monitor it very closely, and as Paul said, we'll have programs in place to try to address issues that we see on that front. But we'll be all over it as we launch and tracking it and seeing what we can do to improve issues that come up.

We have no further questions at this time. I'll turn the call back over to our presenters for any closing remarks.

Okay. Thank you, all, for listening to the call today. I appreciate the questions, and we'll get back to work and hopefully deliver a great 2013. Thanks.

This concludes today's conference call. You may now disconnect.