May 2, 2007
TRANSCRIPT SPONSOR
Executives
Elizabeth Woo - VP, IR Jim Mullen - CEO Bob Hamm - SVP, Neurology Business Unit Peter Kellogg - CFO and EVP, Finance Cecil Pickett - President, R&D Al Sandrock - SVP, Neurology R&D
Analysts
May-Kin Ho - Goldman Sachs Joel Sendek - Lazard Capital Markets Geoff Meacham - J.P. Morgan George Farmer - Wachovia Securities Bill Tanner - Leerink Swann Eric Schmidt - Cowen & Company Ian Somaiya - Thomas Weisel Partners Michael Aberman - Credit Suisse Jason Kantor - RBC Capital Markets Mark Schoenebaum - Bear Stearns Geoffrey Porges - Stanford Bernstein
Operator
Good mornings. My name is Nicole and I will be your conference operator today.
At this time, I would like to welcome everyone to the Biogen Idec First Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).
Thank you. I would now like to turn the conference over to Miss Elizabeth Woo, Vice President of Investor Relations.
Thank you. You may begin your conference.
Elizabeth Woo
Thanks, Nicole. Welcome to Biogen Idec's earnings conference call for the first quarter of 2007.
Before we start, I would encourage everyone to go to the Investor Relations section of our website, biogenidec.com and print out the press release and accompanying table. It will make it easier to follow along when our CFO, Peter Kellogg reviews the financial results and the reconciliation to non-GAAP financial measures discussed today.
We are continuing the practice we introduced in our earlier conference call of posting our slides on our website that follow the topics on the call today. I will start with the Safe Harbor statement.
Comments made in this conference call include forward-looking statements about the company's expectations regarding future financial results, including our financial guidance for 2007 and future growth rate, the launch and potential of TYSABRI in MS, RITUXAN in RA, reimbursement for TYSABRI, and plans for external growth and pipeline growth. Such statements are subject to the risks and uncertainties which could cause the actual results to differ materially.
In particular, careful consideration should be given to the risks and uncertainties that are described in our earnings release and in the risk factors section of the company's quarterly report and annual reports Form 10-K and 10-Q, last, most recently, the fiscal quarter ended December 31, 2006. The company does not undertake any obligation to publicly update any forward-looking statements.
Today on the call, I am joined by Jim Mullen, CEO of Biogen Idec; Bob Hamm, Senior Vice President, Neurology Business Unit; Cecil Pickett, President of Research and Development; and Peter Kellogg, our CFO and Executive Vice President of Finance. I will now turn the call to Jim.
TRANSCRIPT SPONSOR
Jim Mullen
Thank you, Elizabeth. Good morning, everyone.
Thank you for joining us this morning. I want to just make a few introductory comments.
I am very pleased with Biogen Idec's progress on a number of strategic initiatives to grow revenue earnings and enhance our pipeline. And I'll just touch on a few highlights before I turn the call over to Bob, Cecil, and Peter.
So first, the TYSABRI is progressing well. We are in the midst of driving the TYSABRI efficacy message worldwide.
This week, we bought some and host (Elon), we are presenting new data on TYSABRI and some of our other products and this is a great opportunity for us to talk with the neurologist, and a good time in the launch to update people on the information. So far, approximately 12,500 patients have been prescribed TYSABRI worldwide and over 10,000 are on therapy in the commercial or clinical trial setting.
We are steadily working through the European country launches and these will add momentum on the uptake. We expect for us to launch in Q2.
Our market share in MS products is growing. AVONEX performance continues to be strong with 14% year-over-year growth.
AVONEX remains the most prescribed MS Therapeutic and grew in both the U.S. and the international markets in the first quarter.
Our share of the total MS market between AVONEX and TYSABRI has been growing over the last several months. Bob Hamm will discuss these metrics in a bit more detail in his section.
I think this overall growth in share in the MS market demonstrates successful execution of our strategy. Innovation drives growth in the MS market where high unmet needs remains and we’ll continue to drive innovation and necessary with our portfolio of novel compounds including RITUXAN among others which are directed providing more treatment options for MS patients.
We've also had good success in our external growth initiatives. We'd posted a steady number of successes on the business development front over the past one to two years.
We've executed an external growth with the number of smaller acquisitions and product collaborations that each one has large commercial potential. This quarter, we put Syntonix acquisition.
We've been flexible in how we do these deals and how we integrate them and our goal is to maximize the asset. So, for example, when we close on the Conforma acquisition, we very quickly integrated that entire company onto our San Diego site and incorporated that into our oncology efforts.
On the other hand, with Syntonix we took a very different approach, and we are operating Syntonix as a standalone company and giving them the ability to draw our corporate resources to accelerate the programs and in the early days this has been quite successful. So, our strategy is to go after innovations or large markets where innovation has been lacking.
So, for example, you just go back to those last two acquisitions, Conforma brought in the HSP90 technology in compounds which have the potential to work across a number of therapeutic areas. The first targets you know are solid tumors, but we are also looking at some neurological indications.
Syntonix is an example of stepping into a large market, where innovation has been lacking. The global hemophilia market for Factor IX and VIII exceed $4 billion and is growing.
It’s a market thirsty for innovation and we think we have the exciting next generation of products. Less frequent administrations is potentially a major advantage and can grow the prophylaxis market in hemophilia.
In terms of value, we look for opportunities to create significant step-ups in shareholder value. We see opportunities everyday.
We've got broad coverage of the public and private companies in North America and Europe. And our efforts in the ventures right up through acquisitions late-stage compounds and major public companies.
I think gives us a very broad view of all the opportunities in the marketplace. And so, we continue to explore a number of exciting potential opportunities.
And I think, we are pretty optimistic about being able to include more deals this year. We continue to be excited about the Anti-CD20 Franchise or RITUXAN specifically.
There are a number of opportunities that are really starting the second leg of growth for that franchise. The RA opportunity continues to grow well.
You saw the publication yesterday at the MS data, which indicates that B-cell direct therapy can be an important pathway in this disease, and we expect data next year in the lupus indication. And finally I'd like to encourage everyone to possibly attend our R&D Day.
It's a pleasure to welcome our President of R&D, Dr. Cecil Pickett.
He will be hosting the R&D Day on May 17th. I think many of you will be surprised as the breadth and quality of pipeline that has developed benefiting from both external deals such as the oral VLA-4 inhibitor, the HSP9, (detector 9), and then I could go on as well as the internal programs.
And so for example TWEAK and Neublastin are transitioning into development. These are very exciting areas of biology and exciting programs.
A strong internal discovery organization is critical for us to attract and evaluate the best external opportunities, and so we view both of those as operating very synergistically and very much hand in gloves. As Peter will discuss this quarter's top line and bottom-line performance to put us on track for full year guidance, we expect the growth rate and the earnings in the second half of the year to increase as our P&L benefits from the leverage on SG&A investments made for TYSABRI.
So I'll now turn the call over to Bob.
Bob Hamm
Thanks Jim. Let me off by reminding everyone that at Biogen Idec we have the number one prescribed MS therapy today in AVONEX.
And in TYSABRI we have a product that has established a new level of efficacy, which has been shown to delay the progression of disease and reduce relapses by two-thirds, and also the best and broadest pipeline of MS compounds for the future. As our colleagues at Elon indicated on their call last week, the TYSABRI launch continues to build momentum with the number of physicians prescribing in the U.S, increasing each week, and with the continued launch in additional countries in the view that this evolution should continue.
There are now over 10,000 patients being treated worldwide in the commercial and clinical setting. AVONEX sales remained strong with the ABCR market share in the U.S.
increasing recently. Combined market share of AVONEX and TYSABRI is now approximately 40% in the U.S.
In fact considering both products together, Biogen Idec has gained U.S. MS market share during each of the last six months.
We are the leader in the treatment of multiple sclerosis, and we'll continue to be the leader with our robust pipeline that is four products in Phase II or beyond. Namely BG-12, RITUXAN 287, oral VLA4 and daclizumab.
Now let’s go inside the TYSABRI numbers for a bit. TYSABRI continues to build moment as we’ve said.
And as of mid-April approximately 12,500 patients have been prescribed TYSABRI worldwide. There are over 10,000 patients on therapy globally, including 6600 in the U.S., 2500 in EU, and open label study patients of little more than 1000.
We expect this number to continue to accelerate as the number of prescribing physicians continues to climb and the number of countries with reimbursement increases during the remainder of '07. In the U.S.
over 1500 physicians have submitted enrollment forms, and over 6600 patients are on therapy. Breaking down the TYSABRI source of patients in the U.S.
approximately one-third of the patients are returning quitters. Naïve patients are switchers from non-ABCR therapies, a reflection of TYSABRI's potential to grow the market and a figure which has been improving overtime.
As we reported in the previous earning call, glatiramer acetate continues to be the single largest source of TYSABRI patients here to date. The underlying market conditions and drive demand for TYSABRI have not changed with over 200,000 patients being treated for MS today and many thousands more who have abandoned treatment for various reasons.
There remains broad interest by physicians and patients who are impressed by TYSABRI’s efficacy and convenient dosing regiment. Again TYSABRI reduction relapses by two-thirds sustained over two-years as demonstrated in clinical trials and the fact that TYSABRI requires 13 infusions per year versus more than 300 injections per year for some products.
The reimbursement picture in the U.S. largely remains as previously reported.
95% of private pair patients have good access to TYSABRI and TYSABRI has broad access within the public pairs. Additionally CMS has issued a preliminary decision to issue TYSABRI a permanent J-code effective January '08.
The unique TYSABRI J-code replaced the current Q-code and that is why we are recognized by private and public payers as the most efficient reimbursement mechanism for physicians. Moving on to international in TYSABRI launch status, there are over 2,500 patients on therapy in Europe.
Germany and Sweden continue to provide the majority of the patients being dosed with TYSABRI. Exceeding Q1, TYSABRI captured over 2.5% of German MS market share and over 5% of the Swedish market share.
Since our last call, Greece, Luxemburg, Portugal and Israel have launched, Finland and Norway have reimbursement. Amongst significant countries launching later share are France and Spain, it is expected the momentum will continue throughout the year based on the expanded access for people in MS and these countries for TYSABRI.
The international rollout is expected to continue throughout through 2007 and 2008 with 15 new countries expected to have launched by the end of the year. The number of patients should climb even more quickly as TYSABRI’s launched in these other major markets where we expect to be launching soon.
A brief mention on other therapeutic areas for TYSABRI, our partner Elon, is leading the efforts in clones, and as they report on their call last week, the Clones Regulatory Process continues in Europe and the U.S. Moving onto AVONEX, as Jim mentioned in his introductory remarks, AVONEX performed a strong posting 14% year-over-year growth.
AVONEX remains the most prescribed therapy worldwide and the number one therapy in the U.S. for more than ten years.
In the U.S., AVONEX grew 60% recently gaining ABCR market share. Internationally, AVONEX revenue grew 11% in Q1 '07 year-over-year.
AVONEX was successfully launched in Japan in November '06 and is off to a good start. The message is clear with AVONEX.
With its long-term efficacy profile including many years of experience in the physician patient communities and its number one position, AVONEX remains the product to start with. For those who need more efficacies TYSABRI is an appropriate choice.
Turning to this weeks activity at the American Academy in Neurology, there will be six platforms and over 20 poster presentations related to our products AVONEX, TYSABRI, RITUXAN, BG-12 and daclizumab in Boston this week. In the presentation presented so far, the most notable data are RITUXAN Phase II relapsing-remitting MS data, which demonstrates B-cells may represent a potential new treatment strategy in MS.
Key data still to come this week, today AVONEX chance two-year study re-announces using most recent definition of clinical isolated syndrome. Tomorrow, TYSABRI, update from Touch and Tygris, tomorrow TYSABRI three-year efficacy results and tomorrow BG-12 Phase 2b extension study results.
Out of respect for the AAN process, we will honor the presentation time before discussing the data. So just to wrap up, again we have the number one prescribed MS therapy today.
We have a product that has established a new level of efficacy in TYSABRI. We have the best and broadest pipeline of MS compounds for the future.
I think this was clearly in evidence last night when after a very long day at the American Academy in Neurology, some 500 AAN participants turnout to hear Dr. Al Sandrock discuss our pipeline and a panel of experts to discuss developments in MS in general.
And this highlights the fact that we continue to recognize that people with MS need more options, since they will have this disease for decades. And it is unlikely only one drug will be appropriate over the course of their disease.
From diagnosis to disease resolution, we are massing the highest quality portfolio of compounds to address the unmet needs. Now, I will turn the call over to the President of Research and Development, Dr.
Cecil Pickett.
Cecil Pickett
Thank you very much, Bob, and good morning, everyone. Since joining Biogen Idec in September, as you might expect, I have been very busy reviewing the pipeline to better understand our programs and to determine how we can accelerate the development process to reach key decision points.
Today, I will provide a quick recap of Q1 highlights and development status of our pipeline. In Q1, we began enrolling patients into three late-stage programs, registration trials for oral BG-12, or relapsing-remitting multiple sclerosis, galiximab for non-Hodgkin's lymphoma, and lumiliximab for chronic lymphocytic leukemia.
With our partner Genentech, we submitted to the FDA during Q1 2007, supplemental biologic license applications seeking to expand RITUXAN label to include inhibition of progression of structural damage in patients with moderately to severely active rheumatoid arthritis who have had an inadequate response to previous treatment with one or more TNF-alpha antagonist therapies. At the American Academy of Neurology Meeting tomorrow morning, there is suppose to be a presentation reviewing the safety profile of TYSABRI through February 23.
The data is embargoed until the start of the poster presentation at 7 am and I encourage you to take a look at it, if you are here in Boston for the meeting. We will also be issuing a press release at that time with up to date information.
As you saw yesterday, the RITUXAN relapsing-remitting multiple sclerosis Phase II data were presented at the American Academy of Neurology Meeting. So, 104 patients study shows that patients treated with the single course of RITUXAN, has significantly fewer gadolinium enhancing T1 lesions as observed on MRI scans of the brain at weeks 12, 16, 20 and 24 compared to those treated with placebo.
In addition, the study show that the proportion of patients experiencing relapses was significantly reduced over 24 weeks and the RITUXAN treated group compared to placebo. Obviously, we are very encouraged by the data, but we look forward to generating a Phase III step of efficacy and safety data.
We are working with our partner Genentech on how best to move forward and better define the efficacy and safety of B-cell directed therapy. A B-cell directed therapeutic delivered once every six months will fit well into our multiple sclerosis portfolio.
In March, we and our partner PDL BioPharma reported that the CHOICE trial, a 230 patients Phase II randomized, double-blind, placebo control trial of daclizumab met its primary endpoint and relapsing-remitting multiple sclerosis patients being treated with interferon beta. Patients receiving daclizumab 2 mg/kg subcutaneously every two weeks showed a significant reduction in the number of new or enlarged gadolinium-contrast-enhancing lesions at week 24.
Study results will be submitted for presentation at an upcoming medical meeting later this year. Based on a joint review of the 24-week data, the company plans to initiate a Phase II monotherapy trial of daclizumab in the second half of the year.
Both the LT-beta or Ig fusion protein for rheumatoid arthritis and the oral small molecule VLA-4 inhibitor CDP323 are beginning Phase IIb trials in the coming week. In addition, BIIB14, and adenosine 2a receptor antagonist small molecule program in collaboration with Vernalis is poised to begin Phase IIa trials in early and late Parkinson's disease.
This is just a brief update, and I hope you will all attend the R&D day on May 17th in Boston, where we will review our pipeline in considerable depth. We expect you will come away seeing 2007 as a year of executing on clinical trials with 2008 a year of data read-out and decision point.
So with that, I will hand the call over to Peter Kellogg.
Peter Kellogg
Thank you, Cecil. Before I move on to our financial review, please let me remind everyone that we provide Table 3 of our earnings release as a reconciliation of the GAAP to non-GAAP financial results.
GAAP financials are provided in Tables 1 and 2 of the earnings release. Let's first start with our GAAP to non-GAAP reconciliation.
In accordance with Regulation G, Table 3 breaks out the reconciliation by major driver. The main items excluded from operating non-GAAP in Q1 were; first, we adjusted $78 million in purchase accounting charges for the amortization of intangibles and write-off of acquired in-process R&D.
As a reminder, intangibles are related to the Biogen Idec merger, as well as the Conforma, Syntonix, and Fumapharm acquisitions. The in-process R&D is related to the acquisition of Syntonix.
Second, we adjusted for $9 million in pre-tax employee stock-option expenses $6 million of this adjustment was within SG&A while the remaining three is in R&D. Lastly, we had $17 million of tax impacts related to the items that I just mentioned.
Now, as normal, I will review the non-GAAP P&L operating performance of Biogen Idec. We believe it is important to share this non-GAAP P&L with shareholders, since it better reflects the recurring economic characteristics of our integrated business.
It is how we manage the business internally and set operational goals and it forms the basis of our management incentive programs. In Q1, we delivered $0.38 per share diluted EPS on a GAAP P&L.
And after the adjustments shown in Table 3, our non-GAAP diluted EPS was $0.59 per share, which represents the 7% growth rate versus prior year. Now, before walking you through the P&L, I'd like to point out that we expect the first half of the year, as Jim mentioned, to experience lower growth at the bottom line due to the launch of TYSABRI.
However, as we proceed through the year and increased our leverage on commercial investments, we expect higher bottom line growth. As a result, as I close my discussion, I will reaffirm our previously stated guidance.
And in summary, I'll indicate that we're quite pleased with our Q1 results. Now, let’s move through the first quarter non-GAAP P&L results in a bit more detail.
In the first quarter, total revenue was $716 million, that's a 17% growth over the same period last year. And that was driven by several key drivers that have been mentioned already, the continued growth of the AVONEX business, the reintroduction of TYSABRI, and the growth of the RITUXAN franchise driven by label expansions in the oncology and rheumatoid arthritis setting.
Going through our product revenues, I'll begin with AVONEX, the number one worldwide MS product. In the first quarter, AVONEX worldwide product sales were $449 million and that's a 14% increase over prior year.
In the US, our Q1 AVONEX product sales were $270 million up 16%. AVONEX’s Q1 share of the ABCR market remained stable to slightly up.
This is quite an accomplishment given the TYSABRI launch. In addition, Biogen Idec’s total MS franchise market share, which is AVONEX plus TYSABRI, continues to grow very nicely.
As you'll recall, we took a 5% price increase in the US in February of this year. However, even after the increase AVONEX remains the most affordable ABCR therapy for MS.
In addition, we saw a slight increase in the units shipped. Inventory levels have not changed materially and remained in the previously mentioned range, the 1.5 to 2.5 weeks.
Now, let's turn to the international business. Similar to the U.S., the international AVONEX business has grown nicely year-over-year.
Despite the TYSABRI launch and competition in key markets like Germany, international AVONEX sales increased to $179 million, which represents 11% year-over-year increase. Now, the Forex impact was quite positive in Q1.
It was roughly $15 million. And so that certainly does help.
Net-net our international performance remains quite strong particularly in our direct markets, where year-over-year volume grew 6%. In the first quarter, TYSABRI worldwide product sales were $30 million.
As Bob mentioned, TYSABRI continues to make strong progress in its launch. We are proceeding aggressively with our launch in the U.S.
and on a country-by-country basis in Europe. U.S.
end user or end market TYSABRI sales totaled $36 million, which represents a 55% quarter-over-quarter increase. So the launch is clearly ramping up.
Internationally, in a similar basis the international end user or end market TYSABRI sales totaled $30 million, which represents a 76% quarter-over-quarter increase. So obviously, big increases quarter-over-quarter as we roll out and launch this product.
Let's move to other product revenue. First, in the first quarter we had ZEVALIN product sales of $6 million, and secondly we did not have any FUMADERM revenue recognized in Q1.
And as you may recall from our last quarters earnings call, this lack of revenue temporarily was driven by our December 2006 acquisition of Fumedica. Over the time period from December, when we closed that deal to May 1, Fumedica will maintain distribution rates and continue to sell their inventory on hand.
We expect limited shipments from Biogen Idec to Fumedica during that time, as the Fumedica works down its inventory. However, on May 1, Biogen Idec will take will take over distribution, and at that point we expect to begin shipping inventory ourselves in recognizing revenue again.
Now moving onto the RITUXAN collaboration revenues which are referred to on the P&L as revenue from unconsolidated joint business; in the first quarter that was $207 million, an increase of 13% over prior year. Now as we always discuss this number has several elements, first we receive our share of the U.S.
RITUXAN profits. U.S.
RITUXAN sales were $535 million in the first quarter, and our Q1 profit share from that business was $137 million. Secondly, we received royalty revenue on sales of Rituximab outside the U.S.
And in Q1 this was $57 million up 30% versus prior year. Third we have reimbursed our research and development costs incurred related to RITUXAN.
This was $14 million in Q1, again reflecting our key role in the commercialization of RITUXAN in RA. Moving down to P&L, our royalties in the first quarter were $23 million and our Q1 cost of sales were at $82 million or 11% of revenue.
Our first quarter R&D was $188 million, that's about 26% of revenue. And as Cecil has already noted, we continue to see important progress within our pipeline.
We also continue to remain committed to our business development goals as evidenced by the stat that we completed six deals in less than one year. I think Jim talked to a numbers of those points earlier.
It's also worth noting that due to the unpredictable nature of business development activities, R&D spend will likely vary on a quarter-to-quarter basis, so we should all expect that that should be fine. Now let’s move onto SG&A.
Q1 SG&A is a $182 million or 25% of revenue. SG&A is flat versus prior quarter, but it has increased by 25% versus prior year.
A key driver of this increase is the new RITUXAN sales force for RA, as well as the significant investment required to support the TYSABRI commercial build up. To reiterate my earlier comment, we are in the midst of a major marketing effort in the U.S.
as well as on a country-by-country basis to rollout in Europe. These launch activities are required us to significantly increase our SG&A investments over the last few quarters as we proceed through the coming quarters, we expect to see increasing leverage on these commercial investments.
Our collaboration profit sharing line is a negative $6 million, and we discussed previously, this is the line item which reflects our net profit sharing payment with Elon related to our international TYSABRI business. This reflects a $6 million reimbursement from Elon for which share of the international loss in Q2.
Q1 (inaudible) was $2 million and Q1 tax rate on the non-GAAP P&L was 30.4%. This tax rate is comparable to our 2006 full year non-GAAP tax rate of 31%.
I should note that during Q1 we adopted a new accounting standard FIN 48 which requires the disclosures that you will see in our upcoming 10-Q financial statements. While this is new information that does not materially change our tax rate.
This brings us to our Q1, non-GAAP diluted EPS of $0.59 per share. So, in summary, Q1 was a good start to 2007.
Our top-line growth is strong. We continue to proceed aggressively with the re-launching of TYSABRI as Jim and Bob have discussed, we're successfully growing our corporate franchise share of the attractive MS market.
As these were covered we made progress in strengthening our pipeline as we continue to advance programs in the late-stage development. We remain committed to our strong growth strategy with numerous steps that have a potential to create nice value.
Enhance our P&L outlook and guidance for 2007 remains unchanged its highlighted in our press release. As we previously stated, we expect mid-teens revenue growth and non-GAAP diluted EPS in the range of 250 to 265.
That’s just for Q1, now I would like to hand off to Jim Mullen for his closing comments, Jim.
Jim Mullen
Thanks Peter, just a couple of summary points before we go to the Q&A. As I look back over the quarter, I feel very good about the progress that we have made on TYSABRI in the U.S.
and the rest of the world. I am very pleased with the successful execution on growing our total MS market share with two products.
Of course we looked to supplement that in the future with the innovative compounds in our pipeline I think that’s really begins to demonstrate how our strategy is going to play out. Our PDE efforts are ongoing.
We’ve had a great deal of effort behind the scene. You have seen a lot of activity over the last 12-18-months.
And our internal pipeline as you heard, a few of the highlights from Cecil is progressing nicely. And I think I would really encourage people to attend our R&D day and really get the in-depth review of that.
And lastly, our financial performance is on-track to achieve our full year 2007 financial guidance. And as Peter said, we do expect to see leverage on the P&L acceleration in the second half of the year as the TYSABRI momentum continues to build.
So, I will turn it to Elizabeth to open it up for Q&A. Elizabeth?
Elizabeth Woo
Thanks Jim. Joining us on the calls for the Q&A session is Dr.
Al Sandrock, our Senior Vice President of Neurology R&D. Nicole, we would like to open the call for the Q&A session.
I would ask those on the call to limit themselves to one question, out of consideration for your colleague. You can reenter the queue to ask additional questions, but this practice allows the most people to get their questions in.
So operator please go ahead and take the first question.
Operator
Your first question comes from May-Kin Ho with Goldman Sachs.
May-Kin Ho - Goldman Sachs
Hi, can you discuss a little bit of the European market because it looks like in this quarter there was currency benefit, but if you look at the international number is more or less flat and you have added Japan. So, what is the share at this point for you in Europe and what's happening in the marketplace?
Peter Kellogg
Sure. This is Peter.
I'll take that. May-Kin, I think what you find in international, first of all, that's all right for AVONEX, right?
And obviously that's in the phase of TYSABRI launching into Germany and Sweden. But secondly, as I pointed out, in our direct markets, our volumes are up and the whole business from a direct side is doing very well.
We had a little bit of softness on more of the distributor markets around the world in Q1 and that downs around a little bit because of the shipment timing and so forth. So, I wouldn't read too much into that.
And obviously, adding Japan to our portfolio is a great long-term strategic win for us. But at this point it really isn't generating much business.
So, it's very, very early in that development process. So, overall, I don't think I would be too much into it.
Actually, see, this is very strong because AVONEX has continued to very well in the direct market and we are at the same time launching TYSABRI, and as Bob pointed out, getting some very healthy market shares issued with Germany and Sweden. He did comment that there is a currency benefit and that's right.
And so, there is a currency benefit to help the revenue. But as I pointed out, the volumes are also pretty stout on the direct market.
So, we feel pretty good with our Q1 looks.
Operator
Your next question comes from line of Joel Sendek with Lazard Capital Markets.
Joel Sendek - Lazard Capital Markets
Thanks. I have a question on RITUXAN in multiple sclerosis.
Today, you look pretty good. So I am wondering, how quickly can you move that in to registration trials?
And you mentioned that you thought it would fit well as TYSABRI, AVONEX. I am wondering, if you can give a better description of that especially since you have Genentech as a partner, who doesn't have an MS drug?
Thanks.
Jim Mullen
This is Jim Mullen. I'll start with the first part of that and maybe Al would like to add-on on the more scientific part.
So, the way I would characterize the data is, it's certainly very interesting and exciting data. It's relatively small study, short duration.
But it's certainly exciting enough that we should progress this into pivotal trials either with RITUXAN or the follow-on CD20 compounds. And I think that decision is yet to be made frankly in the collaboration whether to advance the second-generation compound in MS or RITUXAN.
But nevertheless, exciting data, we need to push it forward into larger trials, longer duration and go for the goal-standard endpoint that we are certainly pioneered with the other MS products. In terms of how it will all fit together, we may have some ideas now.
I think the real answer is going to come probably in a number of years, as we see how all of these things unfold the marketplace. And perhaps Al would like to comment on that.
Al Sandrock
I agree with all of that. I think the results are very promising.
In fact, they are rather comparable to our Phase II TYSABRI data, which was also a six-month trial. In terms of how it fits in, I think the field is grapping right now with personalized approaches, can we identify MS patients of certain types and there are some papers actually at this meeting that suggests that people are beginning to do so.
The other distinction of course is, this is one treatment lasting for six months, whereas the current therapies are once a week, daily or every other day injections or once a month infusion. So, I think the huge duration between treatment regimens is certainly a huge convenient factor for MS patients.
Joel Sendek - Lazard Capital Markets
Thank you.
Operator
You next question comes from the line of Geoff Meacham with J.P. Morgan.
Geoff Meacham - J.P. Morgan
Hi. Thanks for taking the question.
Just a couple of general questions on TYSABRI. Can you give us a sense or whether there any trends in the rate of discontinuations?
And then, in one of your slides, you mentioned treatment-naive patients. Can you tell us a little bit more about the reuptake in this setting?
And how this is tracking relative to you guys expectation?
Bob Hamm
Jeff this is Bob Hamm. Thanks a lot.
The trends of discontinuation are still emerging, so nothing really new there. We're obviously looking at that very closely as time goes on.
In regards to naive patients, as I mentioned, one-third of the patients are coming from the naive or quitter or switching setting. The quitter setting are people that have been off therapy for a minimum of six months and that's about in-line with expectations at present given the hurdles of the TOUCH program and the things that have to go on for people to move in.
One of the key things to physicians and the patients are looking for is the update on safety and efficacy of TYSABRI. And we are taking advantage of several upcoming medical meetings starting with tomorrow to update physicians on that.
And that will help people getting a better understanding and broader framework for the appropriate patient population.
Geoff Meacham - J.P. Morgan
Okay. Thanks.
Operator
Your next question comes from the line of George Farmer with Wachovia.
George Farmer - Wachovia Securities
Hi. Thanks for taking my question.
Looking at the data that you presented, showing the number of patients enrolled in TOUCH versus the number patients on therapy. There appears to be the stock consistent margin between the two groups.
How do we think about that margin for the GAAP going forward? Does that shrink overtime?
And what are the metrics you think about as patients move on from enrollment into TOUCH and actually getting therapy?
Jim Mullen
George, I will take the first part. This is Jim.
And then perhaps Bob if I don't get it right will add in a little bit. So, we've obviously been in this marketplace for a long time.
So, we know that there is always, if you will, a little of bit of shrinkage between those who enrolled and those who actually begin whether it's an AVONEX injection and treatment or Copaxone or any of the treatment. So, there is a little bit of loss between the decision, if you will, and reality that may come a couple of weeks later.
And there are lots of reasons, why that occurs. Some of them are very practical things like really identifying the logistics and thinking that through.
Do I want to travel to an infusion center? Do I really want to face-up to a daily injection or weekly injection?
Things like that. Payments and reimbursement in co-pays all go into the mix.
And occasionally, there is a change of status of the patient and they go on to different direction along the way. I think, we are at the point now in the launch, where we are beginning to get enough data together to begin to look at what are all, if you will, the small roadblocks that add up to people perhaps not progressing from the TOUCH to actually going on treatment.
And determining how of many of those we can actually help, sold or removed for the patients. Bob, if you want to add a little more color?
Bob Hamm
No, I will just add that, our AVONEX experience tells us that of those we have a low double-digit that don't start for various reasons. As Jim mentioned, they cover wide range of probabilities.
In this case, we are much better handled on the problems and are able to move forward very quickly because while a TOUCH data, so that tells me that it's likely overtime that the GAAP between touch forms coming in and actual people on drug will be less and less important in the scheme of things.
George Farmer - Wachovia Securities
Thanks, it's very helpful.
Operator
Your next question comes from the line of Bill Tanner with Leerink Swann.
Bill Tanner - Leerink Swann
Thanks. Question maybe for Bob and Al.
Bob I know you indicated there were some of these safety updates that physicians may grow more comfortable with TYSABRI. And I’m also curious as to what you guys are seeing out in the field as it relates to potential treatments for PML.
I guess specifically it sounds like the protocol for the Apheresis procedure may have been amended suggesting it works. When is there going to be more visibility as to the availability of that, and are physicians wanting some kind of a potential treatment or are they going to be mainly waiting to see if a case of PML is effectively treated to get them more comfortable with using the drug.
Jim Mullen
So I have been talking to a lot of my colleagues out there and I think one thing that makes me comfortable to see other colleagues use TYSABRI, and so the fact that there are people down the street or the people in an institution and they are saying city is starting to use TYSABRI that's what gives them the great deal of comfort. In terms of PML treatments, we’ll touch on that at the R&D day.
We are looking at Apheresis, we are getting some very good data from that, and we think we’ll be able to recommend specifically how to remove TYSABRI when somebody gets PML and what the protocol for that will be. There are other things we are looking at such as Serotonin 5-HT2A blockers, which show some potential.
And also we've done this deal with out, and I am not looking at RNA interference. And we have some very encouraging animal data.
So we’ll give you an update on that on May 17th, at the R&D day.
Bob Hamm
Maybe I'll just add a comment about the 5-HT2A blockers. These are antagonists for serotonin receptor subtype that apparently is a co-receptor that the virus uses to gain entry in the cells.
And as you know in the AIDS filled with the CCR5 receptor antagonist, that’s co-receptors that block viral entry. This is a very plausible approach to have an impact on infection of cells by the virus.
And again we'll cover that at the R&D day.
Bill Tanner - Leerink Swann
Okay. Thanks.
Operator
Your next question comes from the line of Eric Schmidt with Cowen & Company.
Eric Schmidt - Cowen & Company
Good morning. A question for Peter on the RITUXAN joint venture revenues.
If I did the math right, I think the quarter had Biogen Idec booking at all time low in joint venture revenues in the U.S. as a percent of the total 25.6%.
I'm just kind of wondering with the RA launch now about 12 months behind us, when we might start seeing that number. Is that where we trend back over to the high 20's.
Peter Kellogg
That’s a percentage calculation, I don’t actually use one. So, let me just think about that for a second.
As you know in our line item, RITUXAN for oncology doing the business we have three moving parts. There is the share of the U.S.
profits, and obviously we are doing a lot of trial activity in the U.S. on RITUXAN.
You saw some data from that just recently and this other work going on in RA and so forth. So, I think that our margin on the U.S.
businesses is kind of like at a lower point because of the heavy investment in all those trial. That will probably improve overtime, both to get leverage on the business, plus we won’t quite have that heavy load of trial work forever.
The second is the royalty revenue on the U.S. and that’s a flat percentage of the international business.
So I don’t think that would change the percentage calculation you just did. But obviously that business is doing very well.
And then the third is, we are reimbursed for cost on the RA business, I think at this point that’s for our commercial activities on the RA business side. I think that’s a pretty steady state activity at this point to go quarter-to-quarter.
So, I would have to follow-up with you, to actually run that same percentage to kind of sort that one out. But generally, we don’t really see anything unusual, the only thing that I would say maybe, that has been in Q1 and in some of the prior quarters that we maybe going forward, not be quite as much though.
The margin in the U.S. business will probably pick up as we move past some of the heavy trial activity we had for RITUXAN in the multiple indication.
But I don’t want to forecast that way it's not and we don’t generally look exactly at that percentage all the time. If I understood your percentage properly.
Eric Schmidt - Cowen & Company
You did, that is helpful, thanks.
Bob Hamm
Is that helpful?
Jim Mullen
Okay, great.
Operator
Your next question comes from the line of Ian Somaiya with Thomas Weisel Partners.
Ian Somaiya - Thomas Weisel Partners
Yes, thanks for taking my question. Just a question on the RITUXAN and the humanized anti-CD program in MS, can you just walk us through what some of the considerations are in terms of deciding whether to move forward with the RITUXAN or the humanized antibody and if you could speak to it from a clinical standpoint as well as from a commercial standpoint.
Jim Mullen
This is Jim, I will try to tackle that as best I can, because it's a fairly complex algorithm because we have several compounds under development, with our partners, Genentech and of course Roche. So, you have RITUXAN obviously in the marketplace, you have 287 well advanced, we have another version early in the clinic and as the data rolls in, whether that is clinical, pre-clinical what have you, and each one of these molecules are slightly different and potentially the idea is to optimize them for different facets of the activity that maybe more or less relevant in a different disease setting.
So, what we want to accomplish in oncology, what we want to accomplish perhaps in the (IRA) setting, (glucose) setting etcetera, are all slightly different in terms of what we think the important activities are. So, it's really trying to look at the totality of that data and then determine what's the appropriate strategy and which indications to push forward in most aggressively with the different compound.
I think in total, the three companies are thinking through the order of the immunology disease setting very carefully. In the oncology setting, some of the issues that you might think about in the immunology setting aren’t as relevant.
So, infusion reactions and things like that are pretty well understood enough not as relevant. So, that’s the mix of issues going into.
So, it’s a little bit like playing three dimensional chess and then add on to that what are the competitive activities in the CD20 and how do we want to craft an overall strategy to address the competitive moves by other companies.
Operator
Your next question comes from the line Michael Aberman with Credit Suisse.
Michael Aberman - Credit Suisse
Great, thanks. If I could also follow-up on RITUXAN.
Well, the year-over-year growth looks strong, maybe the past three or four quarters has not been three quarters, sequentially. Doesn't seem the growth has been robust and I am wondering; a) if you can comment if there has been any impact of having that PML warning on label and particularly giving your expertise and then about the PML.
How you think that might play out also in the MS field in the perception of safety versus benefit for RITUXAN on the long-term and specifically given the long duration of actions?
Peter Kellogg
Maybe two parts to that. Let me answer the first one just in terms of quarter-to-quarter terms, and maybe Jim can talk for the second part of it.
So Q1 basically was up versus Q1 of a year ago. But we didn’t have much stronger quarters in prior quarters.
So, it’s not as unusual in this business to see a slightly softer Q1. And in fact I believe on the earnings call that Genentech has already held, when asked about it they indicated that they felt that that there have been some ending inventory level in the trip channels that were a little higher at the end of Q4 than they were in Q1, and that’s not unusual cycle given the holidays.
So I think we just might have seen several typical cycles where Q1 sometimes comes in a little softer. On the second question, Jim, do you want to touch down on the question, is there any chance of reading it.
Jim Mullen
Yeah, let me build off of Peter’s version. So you’d probably recall in the very early part of my comments today that I talked about the CD20 franchises as being in the second leg of growth.
So I think one of the things you see if you will in the growth rate is, in the non-Hodgkin’s lymphoma setting, we are very highly penetrated, it’s the first line therapy. Their maintenance setting is quite highly penetrated, and so the amount of remaining growth in that area I would say is somewhat limited.
And we will continue to look if you will in adjacent oncology spaces for growth. But that’s where we are 10 years then in NHL.
And the second leg of growth and this is very exciting I think is in these immunologic diseases. RA is growing nicely, there’s huge unmet needs, the TNF refractory patient or the TNF failures is a ever growing population, and don’t forget we have Phase 3 programs ongoing to move this forward in the treatment of regiment to compete directly with the [demarked] failures with the TNF’s.
So, I think we're very hopeful that we are going to see expanded label indications in RA. You have seen the data in MS, we’ve got data unfolding in lupus.
So I think we are in the early phases if you will of the second leg of growth of RITUXAN. So that's I guess how I would characterize where we are today.
Michael Aberman - Credit Suisse
Your comment on the PML side of it or?
Jim Mullen
Yes, I'm sorry, the PML side, it's funny; we didn’t setout to become the experts in PML. But, indeed we find ourselves there.
And frankly I think that’s becoming an advantage. This is one of those areas I think, as we have put to spot light on it, people are really paying a lot more attention in those thing that were previously not really well diagnosed.
I think lot of those are becoming much better more refined diagnosis. So, my guess is we're probably going to see PML top of a crust, the broad range of all immunosuppressive [bars] and all the others.
And I don’t think that's an epidemic, I just think its people really thinking about it more clearly. I don’t see that it’s had a huge impact at this point.
PML was known and in the label in the oncology setting. To see it pop up I think don’t think is a great surprise.
Outside of the oncology setting and in lupus in particular, we know from the literature and data base is that, that there is a higher incidence of PML in the lupus population for reasons I don’t know that are fully understood. But, that's a true statement.
So, I don’t think it's having a huge impact at this stage.
Michael Aberman - Credit Suisse
Thanks
Operator
Your next question comes from the line of Jason Kantor with RBC Capital Markets.
Jason Kantor - RBC Capital Markets
Thank you very much. I guess, my question is, how much safety data do you think that you will need from TYSABRI to really drive an inflection point in the use of the drug in the U.S.
and in Europe?
Jim Mullen
You know, I said, I’ve had a number of meetings over the last couple of days around with opinion leaders and big practice leaders in the U.S. and Europe.
And I don't know that there is precise answer to that. I think there is two dynamics that are of course occurring.
One is, as people just get more data, and of course we are going to see the next big thrash of data tomorrow morning on a poster. That if you will reduces the uncertainty about what the rates might be just by getting more information.
So, I think that will be conferring we will have 10,000 plus people would have seen this drug for a significant period of time. Now, for those who are in the watch and wait category, of which there are regional number of physicians.
They really want to see how this plays out over a longer period of time, over say two years. So, I think in a lot of people's minds there is some magic around two years, and how that relates to the two few cases we will observe.
However, there is another dynamic at play, we were sitting at a symposium last night and I think that came out very clearly from Dusan Stefoski at the Russian Memorial mentioning that, the patients are starting to take it out of the hand of the neurologist. And by that I mean, as they start to talk among themselves as they have the experience.
And as they report some of their own personal stories about what TYSABRI and treatment of TYSABRI means to them. We are seeing the dynamic and we heard it many, many times.
We heard it in the initial launch and prior to that launch of people able to do things, feeling better, reporting better quality of life overall. That's in the Phase 3 data, as a matter of fact.
So, those kind of stories then really begin to reset people's perception of what the benefits are, because we've done very little talking about the benefit. All of the discussions have been about the risk.
And I think it rebalances that whole discussion. So I think we see where there are centers, they are accumulating a fair amount experience and the patients begin talking to one another, the momentum builds.
So I don't know what the tipping point is, but I think those are the couple of dynamics involved. Bob do you want to make a comment?
Bob Hamm
Just backing that up, we conduct frequent market research. Because although we are adding prescribers every month in the U.S., we want to know what's going on with the rest.
And we do know from our market research that 70 plus percent that are not prescribing, say they intend to in next 12 months. So when you ask the 25% what is it going to take, the answer as you’ve heard is that, we want see the 2 plus years, we want to see the patient data that's currently present and so that's all backed up by responses we're getting here anecdotally and through the market research.
Jason Kantor - RBC Capital Markets
Thank you.
Operator
Your next question comes from the line of Mark Schoenebaum with Bear Stearns.
Mark Schoenebaum - Bear Stearns
Hi. Thanks for taking my question.
I had another question on RITUXAN in MS, with a different angle. If I’ve got the facts straight, Phase 3 on Rituximab in primary progressive MS will be out next year.
So, I am wondering what if anything the Phase II data in relapsing remaining release yesterday teach us about RITUXAN and its potential activity in primary progressive population? And then also if you can help us to understand how big is the primary progressive population, and is there any AVONEX being used there now by your estimation?
And then just like your take on a housekeeping question, what were the inventory changes for U.S. AVONEX sequentially?
Jim Mullen
The inventory changes if there were anywhere ( minutes ago). So, I am not that one-off and then we will give the media problem to Al.
Al Sandrock
So probably about 15% of patients begin MS, it's for the progressive form and therefore meets the definition of primary progressive MS. Most of those patients, in fact I would say that that majority are not on interferon or AVONEX.
And what the Phase II data in RRMS, how that plays into PPMS. And our prediction is very unclear.
Some people feel that there is overlap between RRMS at PMS and PPMS in terms of the pathophysiology. Others feel that there are quite distinct entities.
Clinically, they are distinct. In fact, the incidence of PPMS is similar between men and women whereas it's skewed toward women in RRMS.
The PPMS patients are generally older and they present more with spinal cord findings. So, clinically, they are different.
But in terms of pathophysiology, there maybe areas of overlap. And so I don't think the RRMS data predicts very well what the PPMS result will be.
Mark Schoenebaum - Bear Stearns
What was the rationale for the PPMS trial then?
Al Sandrock
The rationale for the PPMS trial came from two places; one was that there were studies showed in antibodies were prevalent in patients with PPMS, antibody begins to (Mylan). And second that there was evidence of B-cell maturation and clonal expansion of B-cell in CSF.
So, what we don’t know with RITUXAN is? How does RITUXAN effect CNS clonal expansion and also what we don’t know is how much of that RITUXAN data was mediated by its effects on antibodies.
The effect of RITUXAN in the Phase II trial was very rapid. So certainly a piece of the efficacy must be independent of antibodies.
So the fact that PPMS maybe associated with antibodies may or may not help us figure out whether RITUXAN would be effective in PPMS.
Mark Schoenebaum - Bear Stearns
Thanks a lot. I appreciate it.
Elizabeth Woo
Operator, given the time, we’ll take one more question.
Operator
Your final question comes from the line of Geoffrey Porges with Stanford Bernstein.
Geoffrey Porges - Stanford Bernstein
Thanks very much. Quickly on RITUXAN, my question is whether the debate between Biogen Idec and Genentech is now rate limiting for the initiation of Phase III for RITUXAN.
And then just related, we haven’t talked much about the oral MS drugs, but I know there is number of presentations at AAN about them. Is the efficacy that you're seeing with the oral drugs or the safety profile for that matter, and have to convince you that they really got to be viable alternatives to the current agents given what we're seeing some 30%, 35% reductions in relapse rate.
Peter Kellogg
Let me tackle the first one and maybe I can tackle a little bit of second one and give the second part of the question to Al. In terms of the speed between Biogen Idec and Genentech rate limiting in moving these program forward I would say not any significant way.
So, I don’t really think that’s a barrier seeing these programs move forward. Al, do you want to comment on the second part of the question.
Al Sandrock
I believe the question was old drug, the ABCRs, they are 30% effective drugs and how they will stand up in the face of these newer drugs. I think what we are seeing, it's an era now where and this just became very clear yesterday afternoon of the RITUXAN and the CapEx data, we have modestly effective, but relatively safe drugs in MS and highly effective, but somewhat risky drugs.
And the neurologists are now entering a new world where they have to grapple with choices, that demand held some risk. And it is a new world for them but I think there will always be a place for the ABCR drugs, because even though the aggregate effect is 30%, some patients do very, very well on Interferon and will therefore stay on Interferon probably for the rest of their life or at least while they are in the relapsing phase of a disease and for those who are not getting the efficacy they need from ABCR then there will be a choice to be made as to whether or not they move on to the highly effective drug that carry some risks and the neurology field is dealing with that right now and that became very clear during the symposium last night when we heard the panel discussion among practicing neurology.
Just remember we heard from the patient's point of view as well.
Geoffrey Porges - Stanford Bernstein
Sorry Al, what I was asking was were the oral drugs for example your BG-12 or (lumiliximab) we saw yesterday, while they offer enough efficacy to have a place or are they just not meeting the threshold of what's going to be required in the future?
Jim Mullen
Geoff, this is Jim. My view is I think those products will, assuming that they hold up.
They will have a place in the market. What we haven’t, we don’t have enough information now on.
It's sort of the individual effect. So, just to tie back to Al's point on the Interferon, while the average is 30%, it is very heterogeneous in terms of the individual effect.
So you have people that are essentially in remission or new remission. And you have other people that really don’t respond well at all, that all go into that average.
It is likely that we are going to see that play itself out with the orals. I would guess so.
And there are many factors that go into the decision by the patients and the physicians are what the right product is to start with or what the right product to switch too is. So, I think they are going to have a role.
It may take some more time to figure out that role is. And then the last comment I would make is, I have heard increasing conversation among the neurology community about how to use these products in combination with one of those.
So, I think we are going to see increasingly experimentation out there both at the investigator side as well as from the company, product combine products together to optimize the treatment regimen.
Geoffrey Porges - Stanford Bernstein
Alright, thanks very much.
Jim Mullen
Thanks.
Elizabeth Woo
Given the time, we are going to end our call. But for those of you that did not get to ask your question, you can call the IR group.
We will be in our offices in a few minute. Thanks again for joining us on the call.
Operator
Thank you for participating in today's teleconference. You may now disconnect.
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