Growth in revenue from MS drugs has been driven largely by price increases over the last several years.

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1 March 4, 2013 Ben Weintraub, PhD Are Injectable MS Drugs Finished? Market Ready for Tecfidera Companies: Biogen (BIIB) Sanofi (SNY) Teva (TEVA) Novartis (NVS) Merck Serono Bayer Schering Products: Tecfidera (BG-12; dimethyl fumarate, oral) Aubagio (teriflunomide, oral) Gilenya (fingolimod, oral) Tysabri (natalizumab, infused) Lemtrada (alemtuzumab, infused) Copaxone (glatiramer, injectable) Avonex (interferon, injectable) Betaseron (interferon, injectable) Rebif (interferon, injectable) Biogen (BIIB) is expecting U.S. approval of its oral multiple sclerosis (MS) drug BG-12 (dimethyl fumarate, to be branded as Tecfidera) later this month. Most neurologists expect Tecfidera to rapidly become the preferred oral treatment for MS over Novartis s (NVS) Gilenya and Sanofi s (SNY) Aubagio. Less clear is the degree to which Tecfidera can displace use of Teva s (TEVA) Copaxone, Biogen s Avonex, Merck Serono s Rebif and Bayer Schering s Betaseron as a first-line choice for MS. o o In an editorial published in the Multiple Sclerosis Journal in January, Robert Fox published, In the coming year we should abandon interferons and glatiramer acetate as firstline therapy for MS: Yes. We do not expect such a dramatic shift, but do expect more first-line Tecfidera use than has been seen with Gilenya and Aubagio. inthought expects Tecfidera sales of $700 million this year, peaking at $3.3 billion in We present our Tecfidera estimates in the context of the eight currently marketed MS drugs (two oral and six injectable) along with estimates for generic glatiramer, biosimilar interferons, Lemtrada, PEGinterferon, daclizumab, ocrelizumab, laquinimod, and ponesimod. Growth in the MS market has been largely driven by price increases over the last few years. We expect the explosion of new MS drugs to increase price competition and lead to slower growth of the overall market from ~10% over the last three years to ~5% for the next two years, followed by a shrinking market as generic glatiramer and biosimilar interferons are introduced. Biogen s MS franchise will increase from two drugs to four or five drugs by 2015, and its share of the MS market will increase from 33% currently to nearly 50% in our model by Ben Weintraub, PhD Samantha Crofskey Leon Henderson, MD (+64) ben.weintraub@symphonyhealth.com samantha.crofskey@symphonyhealth.com leon.henderson@symphonyhealth.com

2 MS patients are enjoying a wealth of newly approved and soon to be approved treatment options. Unlike the situation with hepatitis C, where the undiagnosed and untreated populations are huge, most MS patients are diagnosed and treated. Our model estimates that of the 410,000 U.S. MS patients, nearly 300,000 received one or more of the approved MS drugs in That treated population will grow to 350,000 by 2016 in our model, but new therapies will not significantly expand the size of the treated patient population. Growth in revenue from MS drugs has been driven largely by price increases over the last several years. Not only are new therapies more expensive than existing ones, but Copaxone, Tysabri, and the interferons have increased in price by 5-8% each year. This has resulted in 10-15% growth of worldwide revenue from MS drugs over the last four years (Table 1). Growth in revenue from MS drugs has been driven largely by price increases over the last several years. Although we do not expect the list price for the current MS drugs to decrease, drug manufacturers are likely to give significant discounts to payors for choosing specific products for placement on formularies, leading to net pricing decreases. This situation is similar to what has been occurring in the U.S. with rheumatoid arthritis biologics (primarily Amgen s Enbrel and Abbvie s Humira) over the last few years, where the list price continues to increase but the net price is actually decreasing. We model worldwide MS revenue increasing by 5% in 2013 and 2014, followed by a shrinking MS market starting in 2015 due to the introduction of generic glatiramer and biosimilar interferons (Table 1). Biogen is currently and will continue to be the major player in the MS market. Its global MS market share increases from 33% today to 49% by 2017 in our model as its products increase from Avonex and Tysabri to include Tecfidera, likely PEGinterferon, and possibly daclizumab (Table 1). Table 1: MS Revenue Estimates by Company $ millions worldwide 2009A 2010A 2011A 2012A in Thought vs. Consensus Biogen MS Franchise Avonex 2,333 2,445 2,688 2,900 2,904 2,656 2,301 1,761 1,426 1,231 similar Tysabri* 1,058 1,224 1,501 1,635 1,623 1,479 1,270 1,230 1,080 1,087 significantly below Tecfidera ,952 2,680 3,108 3,304 2,389 above initially, then below PEG-Interferon significantly below Daclizumab Biogen Other Biogen Total 3,418 3,696 4,219 4,566 5,267 6,276 6,661 6,730 6,628 5,782 Sanofi MS Franchise Aubagio significantly below Lemtrada similar Sanofi Total ,076 1,183 Teva Total 2,826 3,315 3,892 4,021 4,040 3,864 2,804 1,791 1,441 1,504 similar Novartis Total ,375 1,328 1,158 1, significantly below Merck Serono / Pfizer (Rebif) 2,144 2,208 2,349 2,382 2,325 2,233 1,776 1,491 1,173 1,057 Total Others 1,718 1,753 1,671 1,733 1,696 1,444 1,743 2,006 2,150 2,390 Worldwide Total 10,152 11,118 12,784 14,085 14,763 15,499 14,809 13,935 13,409 12,810 Growth 13% 10% 15% 10% 5% 5% -4% -6% -4% -4% Biogen Market Share 34% 33% 33% 32% 36% 40% 45% 48% 49% 45% Source: Company data, inthought estimates, consensus estimates compiled by Bloomberg. *Includes 100% of Tysabri revenue, assuming Biogen's purchase of Élan s share is completed. Biogen Other includes Rituxan for MS and ocrelizumab. Sanofi Total includes 100% of Lemtrada sales, although some proportion will go to Bayer Schering. Teva Total includes Copaxone, laquinimod, and ponesimod. Novartis Total includes Gilenya and Extavia. Total Others includes Betaseron, generic glatiramer, biosimilar interferons, and Novantrone. Estimates assume approval for developmental agents. Ben Weintraub, PhD March 4, 2013 Page 2

3 Figure 1: Weekly U.S. New Prescriptions of Oral MS Drugs Source: Symphony Health PHAST Oral vs. Biologics for MS Tecfidera will be the third oral MS drug, and most neurologists expect it to be the best oral option. Novartis s Gilenya is efficacious but has significant safety issues that lead to monitoring requirements, especially on its first dose. Sanofi s Aubagio is likely safer than Gilenya, but its efficacy is modest at best sales of Gilenya were $1.2 billion worldwide, up from $500 million in 2011, its first full year on the market. Aubagio sales were only $9 million in 2012 following a September 2012 FDA approval. Symphony Health data show that new prescriptions of both Aubagio and Gilenya are increasing slowly, a trend that could be quickly reversed to flat or declining as soon as Tecfidera is approved (Figure 1). Data from our ImpactRx Physician Panel that tracks patient encounters from 225 U.S. neurologists recorded 118 prescriptions of Gilenya and 48 prescriptions of Aubagio between January 12 and February 21, 2013 (Table 2). Most of the Gilenya encounters were patients renewing their prescription ( Continuing Therapy ), and it is not surprising that more than half of the Aubagio encounters were new patient starts given its shorter time on the market. The data suggest that Aubagio is being used in milder MS patients, with a greater proportion of first-line use (i.e. New MS Diagnosis ) and in patients with mild MS. About the same percentage of patients are switching from interferons (~45%), Copaxone (~35%), or Tysabri (~25%) for each of the two drugs. We did not capture any patients who switched from Gilenya to Aubagio or vice versa. inthought expects Tecfidera to be preferred over Aubagio because of superior efficacy, and to be preferred over Gilenya because of superior safety. In our model, sales of Aubagio increase to $81 million in 2013, peaking at only $238 million worldwide, significantly below Street consensus numbers of approximately $800 million (Figures 2 and 3). Table 2: Physician Survey Data for Oral MS Drugs % Continuing Therapy % New MS Diagnosis % Mild Disease % New Starts that are Switching from Another MS Therapy Encounters Gilenya % 5% 15% 48% Aubagio 48 42% 15% 21% 54% Source: ImpactRx. Based on patient encounters from Jan 12-Feb 21, Ben Weintraub, PhD March 4, 2013 Page 3

4 Figure 2: U.S. Revenue of Selected MS Drugs Source: Company data, inthought estimates. We estimate sales of Gilenya will also suffer because of Tecfidera, with revenue of $1.2 billion this year, decreasing to $700 million worldwide by These estimates are well below Street consensus of $2.8 billion by 2018 (Figures 2 and 3). The most significant issue is the degree to which Tecfidera will displace use of first-line MS drugs (Copaxone and the interferons). Dr. Robert Fox from the Cleveland Clinic presents a compelling argument that injectable medicines for MS should be abandoned in his editorial in the Multiple Sclerosis Journal (19(1) 24 25, Jan 9, 2013). While his case is likely overstated, our ImpactRx data suggest that Gilenya and Aubagio are already, albeit infrequently, used first-line. We expect Tecfidera to be a more common first-line treatment choice. inthought models a fast start for Tecfidera, with sales of $700 million this year, nearly $2 billion in 2014, and increasing to $3.3 billion by Our estimates for Tecfidera are above Street consensus for , although our peak sales estimates are below consensus due to concerns about alternative fumarate formulations being introduced by 2018 (Figures 2 and 3). Pegylated Avonex Advances In addition to the positive outlook for Tecfidera, Biogen also has good momentum for its long-acting version of Avonex, PEG-Interferon. In January, that drug met its primary and secondary endpoints in the phase III ADVANCE study in patients with relapsingremitting multiple sclerosis (RRMS). The annualized relapse rate (ARR) at one year was significantly reduced versus placebo by both dosing schedules evaluated in the study; PEG-interferon reduced the ARR by 36% with every 2-week dosing and by 28% with every 4-week dosing. By comparison, Avonex is dosed once per week and reduces ARR by approximately 32%. Furthermore, the risk of 12-week disability progression was significantly reduced in both treatment arms; by 39% with 2-week dosing and by 26% with 4-week dosing. The reduction in the number of new or newly enlarging T2-hypertense lesions on MRI scans were reduced by 67% and 28% in the 2-week and 4-week dosing arms, respectively. Safety and tolerability appeared to be favorable with both dosing schedules. Ben Weintraub, PhD March 4, 2013 Page 4

5 Figure 3: Worldwide Revenue of Selected MS Drugs Source: Company data, inthought estimates. Full results of the ADVANCE study will be presented at the annual meeting of the American Academy of Neurology (AAN) in two weeks. Biogen will likely file for regulatory approval of both dosing schedules of PEG-interferon in the U.S. and the EU in the next few months. Lemtrada Although the main focus is on oral medicines for MS, Sanofi s Lemtrada (alemtuzumab) continues to generate compelling data, making it the most important biologic in the MS pipeline. In January, the FDA accepted Sanofi s regulatory filing, and the drug is also submitted for approval in Europe. Lemtrada s efficacy is on track to be superior to all other MS drugs, with the added benefit that one course of therapy appears to be sufficient for longterm cure of MS. However that efficacy is offset by significant safety issues. Lemtrada s propensity to induce autoimmune adversities such as immune thrombocytopenia (ITP) came under intense scrutiny during its clinical development program. However, risk management strategies implemented by Sanofi in the later stages of the program appeared to be effective in the early detection and subsequent management of autoimmune issues. Ultimately, the issue with Lemtrada will be identification of optimal patients for its receipt. Studies suggest that Lemtrada s efficacy is greater when administered earlier in the disease process, so that use would be optimal prior to failing other MS therapies. However, the adversity risks will lead many to think of Lemtrada as a last-line option, where its efficacy may be considerably less impressive. We expect some neurologists to opt for Lemtrada in newly diagnosed young, otherwise healthy MS patients as a way to stop the disease in its tracks. Still, our revenue estimates for Lemtrada have the drug peaking at just under $1 billion in worldwide sales in 2018 as many patients opt for safer and still effective treatment options. Copyright 2013 Symphony Health Solutions All rights reserved inthought Research Reports provide unbiased analysis and ideas based on the needs and direction of clients. inthought may provide consulting services to issuers discussed in the research. The material herein, while not guaranteed, is based upon information believed to be reliable and accurate. We do not: (a) give investment advice; or (b) advocate the sale or purchase of any security or investment. The material herein is not to be deemed an offer or solicitation on our part with respect to the sale or purchase of any securities. Any copying, redistribution or republication of the analyses provided by inthought, a division of Symphony Health Solutions, or the content Ben thereof, Weintraub, for commercial PhD gain is strictly prohibited. March 4, 2013 Page 5