Analyst Conference Call Summary

conference date: July 26, 2011 @ 5:30 AM Pacific Time
for quarter ending: June 30, 2011 (second quarter, Q2)

Forward-looking statements

Overview: About as expected except for RITUXAN revenue reduction due to partner accrual issue.

Basic data (GAAP):

Revenues were $1.209 billion, up 0.5% sequentially from $1.203 billion, but down 0.5% from $1.213 billion in the year-earlier quarter.

Net income was $288.0 million, down 2% sequentially from $294.3 million and down 2% from $293.4 million year-earlier.

EPS (earnings per share) were $1.18, down 2% sequentially from $1.20, and up 5% from $1.12 year-earlier.

Guidance:

Improved Guidance. Revenue for 2011 expected to grow in low to mid-single digits over 2010. GAAP EPS expected above $4.91. Non-GAAP diluted EPS above $5.70. Capital expenditures in range of $200 to $220 million.

Conference Highlights:

"Our share of RITUXAN revenues from our unconsolidated joint business was reduced by approximately $50 million during the second quarter of 2011 as a result of an accrual relating to an intermediate decision in Genentech, Inc.'s ongoing arbitration with Hoechst GmbH." That had a negative impact of about $0.15 on EPS.

Our R&D spend has been reduced to the low to mid 20's as a percent of sales due to narrower focus, yet the late stage pipeline is very promising.

Non-GAAP net income was $332 million, down 3% y/y. Non-GAAP EPS was $1.36, up 4% y/y.

Avonex (interferon beta-1a) revenue was up 5% y/y to $659 million. This reverses a five year trend of declines. New starts are strongly tending to the PEN delivery product.

Tysabri (natalizumab) revenues grew 28% y/y to $281 million. JC virus antibody status now on label in EU, where JCV assay is commercially available. Five year marketing authorization renewed in Europe. About 61,500 patients were on therapy worldwide. Assay should be commercially available in the U.S. in the coming months. About 10% of patients fall in highest risk for PML from JCV category, which involves a positive JCV assay, prior immunosuppresive use, and over 2 years of Tysabri use.

Other product revenues were $16 million, up 36% y/y. Royalties were $29 million, down 5% y/y.

Rituxan for NHL and RA (rheumatoid arthritis) revenue was $216 million, down 29% from year-earlier due to the $50 million charge to the unconsolidated joint business venture. $749 million collaboration sales were up y/y.

Fampyra was approved in the EU, following an earlier disapproval. Getting ready for launch, which will start in Germany.

BG-12 for multiple sclerosis (MS) launch is being planned.

Long lasting recombinant Hemophilia A factor VIII reported promising results.

Daclizumab for MS (multiple sclerosis) registrational results should be out this summer. This would be a once-per-month therapy.

U.S. operations being consolidated in Cambridge, Massachusetts.

Cash balance ended at $2.5 billion. $191 million spent on share repurchases.

Cost of sales was $100.5 million. R&D expense $285.6 million. Sales, general and administrative $266.3 million. Collaboration profit sharing expense $88.1 million. Amortization of acquired intangibles $55.1 million. Contingent consideration adjustment $2.2. Income from operations $410.8 million. Other expense $11.7 million. Income taxes $95.0 million. Net income attributable to noncontrolling interest was $16.0 million.

Q&A:

BG-12 Confirm vs. DEFINE trials? The only real difference is the additional glatiramer arm and different primary vs. secondary endpoints. Believes will have 10 years of exclusivity in the EU.

Daclizumab positioning in market will depend on the data, which we have not seen yet.

Cost reduction plans have gone as planned. We are going to be making investments in SG&A to launch Fampyra and to prep for BG-12 launch.

Decrease of discontinuation of Tysabri in U.S.? Went through a testing phase, now we are seeing more starts.

MS market growth vs. share within market? Believes there is a need for high-efficiency drugs like Tysabri.

BG-12 vs. Copaxone? We can't predict because we don't have good placebo controlled data from recent years.

Why has Avonex done so well this last year? No single factor. Messaging has been refined: most studied drug. Sales force has been better trained in the science. We also provide additional patient services. Avonex always got a large proportion of new patients and continues to do well there and in switching market.

Tysabri growth drivers? Interest in high-efficacy, screening for risk, identifying patients who could benefit. Discontinuations and holidays, seem to be trending down, but no quantification of that yet.

There are about 500,000 MS patients in Europe, about one-third fall into the category that might benefit from Fampyra.

Long-acting Factor VIII will reduce infusions by about 30%, which should be attractive to patients.

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