Analyst Conference Summary

conference date: July 20, 2010 @ 5:30 AM Pacific Time
for quarter ending: June 30, 2010 (second quarter)

At least at the time this summary was written.
Forward-looking statements

Overview: Solid revenue growth and spectacular earnings growth.

Basic data (GAAP):

Revenues were $1.21 billion, up 9% sequentially from $1.11 billion and up 11% from $1.09 billion in the year-earlier quarter.

Net income was $293.4 million, up 33% sequentially from $220.0 million and up 105% from $142.8 million year-earlier.

EPS (earnings per share) were $1.12, up 40% sequentially from $0.80 and up 128% from $0.49 year-earlier.

Guidance:

For the full year 2010 revenue growth is expected to be in the mid single digits over 2009. Operating expenses expected to grow in low single digits, with R&D expense 24% to 27% of revenues, SG&A expense 20% to 22% of revenue. GAAP EPS $3.82; Non-GAAP EPS above $4.70, an increase from prior guidance. Capital expense for full 2010 expected $170 to $200 million.

Conference Highlights:

Non-GAAP net income was $343 million, up 57% y/y, and EPS was $1.31 for the quarter. In Q2 2009 EPS was impacted by a $110 million ($0.32/share) payment to Acorda. $10 million for stock-comp expense, amortization, and tax effects eliminated from GAAP numbers to get non-GAAP.

Avonex (interferon beta-1a) revenues were $628 million, up 6% y/y. Also up 6% ex-US, but down in U.S.

Tysabri (natalizumab) revenues were $219 million, up 17% y/y. 17 patients who developed PML tested positive for JC virus prior to Tysabri use; new trials started to test. New Tysabri patients averaging 185 per week. Believes risk of PML is higher for patients who received immunosuppresants before receiving Tysabri. 52,700 patients in therapy; 26,200 in U.S.

Fumaderm revenues were $11.8 million, down 3% y/y.

Rituxan for NHL and RA (rheumatoid arthritis) produced $306 million, up 11% y/y. (listed as unconsolidated joint business revenues on income statement)

Royalty revenues were $30 million, up 20%. Corporate partner revenues were $17 million, up 13%.

Cash and marketable securities ended at $1.536 billion, with other investments of $201 million. Notes payable and line of credit ended at $1.07 billion. Bought back about $1 billion in stock in quarter.

Cost of sales was $107 million, R&D $332 million, selling, general and administrative expense $262 million, collaboration profit sharing 463 million, and amortization of acquired intangible assets $53.2 million, for total costs and expenses of $817 million. Leaving GAAP operating income of $396 million. Other income was $1 million. Income tax expense was $102 million.

BG12 Phase III Explore trial began. PEGylated Interferon Phase III trial agreement with FDA reached. Recombinant factors 9 and 8 (rFVIIIFc) for hemophilia progressing to registrational trial by end of year. Data for 9 expected in 2012.

8 programs in pipeline; 4 in MS, 4 in others. Daclizumab in Phase III trial. GA-101 humanized anti-CD20 MAb for oncology in Phase 3. But 2 therapies dropped: Phase II BG12 RA (rheumatoid arthritis) and Phase II interferon Beta1A in ulcerative colitis. Also dropped Parkinson's drug in favor of next generation Bip34. Prolonged-Release Fampradine for MS to improve walking moving forward.

Euro impact was minized with hedging.

Healthcare reform impact on revenue revised to negative 1% from negative 2%. Some downward price pressure in Europe, particularly in Spain.

Q&A:

Overall foreign exchange impact? Sequentially euro dropped 7%, for $27 million, offset by $20 million in hedge gains. Net negative $7 million in revenue. But op ex dropped $10 million in quarter, more than compensating.

2011 U.S. healthcare changes? $20 to $25 million estimated pharma tax will be new. We think this is manageable.

Reinvigoration statement? Looking for a new head of R&D. New CEO wishes to move forward aggressively. Goal is to build the best possible pipeline, getting the most return on R&D dollars. Willing to bring in projects to strengthen the pipeline.

What is driving the new Tysabri adds? There has not been a meaningful change in discontinuations. Trough in November through February may be due to label discussions. April American Academy of Neurology meeting went well.

BG-12 ulcerative colitis discontinuation & RA? Did not meet pre-specified efficacy. Did not see unexpected adverse events. RA hurdles are high because there are very effective drugs out there.

Prior exposure Tysabri issue effects on market? We are not giving advice to doctors based on a single risk factor.

Sharecount? Took in 20 million shares in quarter. Bought more already this quarter.

Tysabri rest of world sales did grow sequentially if you strip out foreign exchange issues.

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