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spk10: Good morning. My name is Bettina and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen first quarter 2023 earnings call and business update. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. Please limit yourself to one question to allow other participants time for questions. If you require any further follow-up, you may press star 1 again to rejoin the queue. Today's conference is being recorded. Thank you. I would now like to turn the conference over to Mr. Chuck Triano, Head of Investor Relations. Mr. Triano, you may begin your conference.
spk03: Thank you, Bettina. Good morning, and welcome to Biogen's first quarter 2023 earnings call. Before we begin, I encourage everyone to go to the Investors section of Biogen.com to find the earnings release and related financial tables, including our GAAP financial measures and a reconciliation of the GAAP and non-GAAP financial measures that we will discuss today on the call. Our GAAP financials are provided in Tables 1 and 2, and Table 4 includes a reconciliation of our GAAP to non-GAAP financial results. We believe non-GAAP financial results better represent the ongoing economics of our business and reflect how we manage the business internally. We've also posted slides on our website that follow the discussion related to this call. I'd 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 our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. On today's call, I'm joined by our President and Chief Executive Officer, Chris Feebacher, Dr. Priya Singhal, Head of Development, and our CFO, Mike McDonald. Chris, Priya, and Mike will each make opening comments, and then we'll move to the Q&A session. To allow us to get through as many questions as possible, we kindly ask that you limit yourself to one question. I'll now turn the call over to Chris.
spk05: Thank you, Chuck. Good morning, everybody. I'll start by first welcoming Chuck Triano as our new head of investor relations. Great to have you on the team, Chuck. On our last call, we described five priorities for the business that you see on the first slide here. And during the first quarter, I think we made a lot of good progress against those five priorities. We are continuing to work toward the potential launches of Lekembe and Alzheimer's disease and Zoranilone in both MDD and PPD. And I'm going to cover that on the next slide because that's really in some ways a super priority. On the next point on improving the risk profile and productivity of R&D, Priya will review the steps taken to improve the risk profile and the productivity of R&D. And you'll see that in greater detail. So I'm going to cover a little bit more on the cost base. The first thing I'd like to say is that we've made good progress on the previous program that had announced a billion dollars of cost savings. Those billion dollars have been secured and that program is complete. But over the last several months, I've been getting a better understanding of how the company operates, working with our senior leaders and thinking about how we operate at all levels of the company. particularly at a global, regional, and affiliate level. And as we said before, we do have a higher cost base than the average company in our category. And so we've initiated an additional program to align our operations and cost base with the expected revenue while leaving enough money for the upcoming launches. And we internally refer to this program as Fit for Growth. And really what we're trying to do is balance the opportunity for profitable growth by investing in our product launches and the R&D projects that we deem priority with an attempt to try to reduce that cost base and get that back to something that looks a little bit more in line with our competitors. Now, that's not just a simple job of taking out cost. What we're really trying to do is redesign the company. We have these two launches. They're going to have different geographic points of focus at the start. We won't have Zorana Loan for a few years outside of the U.S. Zorana Loan is clearly a top priority in the short term in the U.S. And outside the U.S., we're going to be certainly focused on the Lakembi launch in the first instance. So one of the things we want to do is make sure that we don't lose what is good in the company and what has been working. We also have to remember that we are still a leader in multiple sclerosis. There are a lot of patients who depend upon our products, and we have to make sure that the physicians who treat those patients have adequate information. So there's a balancing act as we try to shift our resources behind the growth opportunities while still supporting our historic MS business. And so we're taking essentially a bottoms-up and a methodical approach to this. This could have a much different approach to our operating model. We've been 45 years in multiple sclerosis with a limited product profile. Yes, we had at one point some products in hemophilia, and obviously we have Spinraza. And as a result, we had an awful lot of centralized cost. Right now, we're looking at how do we get a lot more of our resource and our attention closer to the customer. So it's a redesign effort, and it's meant to be durable. So we do recognize that there's an opportunity to reduce cost, but we really are looking at something more transformational that really sets the company up for growth. We'll be able to say more about that in Q2. Then another priority is really managing the base business. There's two dynamics in the company. We are a leader in MS, but that business is increasingly affected by competition. And we have growth opportunities with McKenvey and Zerenolone. So on the base business, the idea is how do we manage that business as profitably as we can? We did receive a favorable decision from the Court of Justice of the European Union related to TechFedera regulatory data and marketing protection, which was an important reinforcement of intellectual property and exclusivity rights. We believe this provides us marketing protection until at least February of next year. And we are looking to enforce that protection, but it'll take a little time for the market to settle. And separately, we also continue to enforce our 2028 patent for tech federa in the EU. We're also looking to aim to we're looking to maximize the profitability of the MS franchise. You know, up until now, the goal has been to defend revenue at all costs. I think now we want to take a little bit more of a nuanced approach of looking at where are the opportunities in MS, where do we have intellectual property, where do we have still sales promotion sensitivity and, and try to align our resources with that. And perhaps the, look at other means of promoting products that are a little less expensive. We do believe that Spinraza can return to growth, and we are seeing stabilization out there in the marketplace. Gene therapy is not for everyone, and the oral therapy has its limits. And there are still quite a few patients that suffer from SMA that don't benefit from any treatment. And as we announced at the previous quarter, we do have a formal process underway to evaluate strategic options for our biosimilars business. This is a very good business, and I think especially with the launch of biosimilars for Humira, we are seeing an opportunity for the healthcare system to make important economies that help fund innovation. And we need to think about how is the best way to manage this business and who might be the best owner of that business. On external growth, you know, we're looking at external growth really from two perspectives. One is how do we balance the company a little bit more on its pipeline? It has been very neuroscience focused. But as I've argued in the past, I think with MS, which is basically an autoimmune disease, I think we could migrate into immunology. With Spinraza, I think we have an experience in rare diseases, and that will be reinforced with Tafersin. And of course, we're in neuropsychiatry with Zoranilone. So these offer opportunities to think about how do we build out some of those franchises. The other is, you know, I did describe this dynamic of the MS franchise declining slightly and new growth coming. And we may look at external growth as a way of of making sure that that transition is as smooth as possible from a results point of view. I'm pleased to say that we've appointed Adam Keeney as our head of corporate development. Adam has over 20 years of experience, not just in business development, but also in R&D and strategy across both large pharma, and he was the CEO of Biotech. So I think he's got some entrepreneurial spirit that will be very welcome at Biogen. We do see McKembee and Zorana Loan as major contributors to revenue, but, you know, we want to continue to think about business development to support the growth trajectory and diversify, as I said. So, if I could have the next slide, please. So, you know, we've really got an unprecedented opportunity. We have today a PDUFA date for Tafursin. We have a PDUFA date in July for McKembe and a PDUFA date in August for Zerenolone. I can't think of another major biopharmaceutical company that has that many new significant products to launch. That's a huge opportunity. But as I said earlier, we have to think about capabilities on that. These are going to be in different areas. Obviously, McKembe is a little closer to home since it's still the neurologist. but there's an awful lot of market building will have to be done there. And of course, the rent alone takes us into a much different area and a much different physician franchise, but we're making our milestones. We received accelerated approval in the U S back in January. Um, we filed for traditional approval in the U S uh, on the same day in the, in, in, within the EU, Japan, and when, and ACI initiated a regulatory filing in China. You know, filing all of those dossiers in that kind of timeframe is really quite significant, and I have to congratulate our colleagues at ACI for this effort. These filings have received priority review in the U.S., Japan, and China, and, of course, a major milestone in that the Veterans Health Administration has decided to reimburse McKinley. Now, Lekembe is going to be the first anti-amyloid antibody to receive traditional approval globally, hopefully in July. As we said, this is not a straightforward launch. It's a complex diagnosis involving PET scans, lump or puncture for amyloid confirmation, specialists who are already busy, MRI imaging, biweekly infusion. And we know that capacity could be an issue initially. CMS reimbursement will be the next major milestone. which we expect to have an answer on once the product has received full approval as expected following the PDUFA date in July. More importantly, though, we're looking at how do we right now alleviate those bottlenecks. Yes, CMS is there, but both companies are already thinking about what we can do to make this easier for patients and actually reduce cost. ASI and Biogen are pursuing maintenance dosing and the sub-Q formulation. Blood-based diagnostics, as I've said in the past, are really going to be a game changer in this space. And we believe that over time capacity is going to expand to meet the need. For reimbursement, you know, this is a big question. The Veterans Association is certainly helpful. I would just point out that compared to the situation that Aduhelm faced, we are getting a lot more support from Congress. The American Association of Neurologists has written in support. And I know that a number of patient advocacy groups are active in ensuring that patients have access to this important therapy. So, ACI is responsible under the contract for engaging with CMS. and we would hope to see broad coverage coming out of the CMS decision. Now, I'd like to talk about Zoranolone just for a few minutes. I mean, Zoranolone is still, I think, an underestimated asset in our portfolio. Unfortunately, a lot of people suffer from depression, so it is a large market. There are clearly a number of older medicines that are available. The main problem with those are the side effects of those medicines and the length of time it takes for them to work. Zoranilone works potentially in three days, and it's going to be a different type of launch because we're talking about a treatment that works in two weeks. The only analog I can find that is in a way similar was Zithromax. So we do know that there is going to be some need for education. Physicians are used to treating on a chronic basis. As we launch even, we're going to have to think about different metrics. One of the things in a launch that you look for is when do NRXs switch to TRXs? Well, we're not going to see that. There are not going to be TRXs with the product. So I think there are these changes in physician behavior. This is a paradigm shift. Paradigm shift is not always a good thing in physical marketing, as we know. However, what really drives us, this is a product that really makes a difference for patients. This is a product that is efficacious, it works fast, and think about the freedom of knowing that after two weeks that you can stop taking Zoranolone. So I think that is going to be an enormous opportunity and I'll just finish with to person on this. It is not a big product, obviously about 300 patients, but it's, it's, it's classic biogen. There's a, we have a long history in a lot of setbacks, but the organization has an ability to learn and adapt. And was able to partner with the scientific community to help characterize neurofilament and the biomarker and neuromuscular disorders. This is a huge deal because. neurofilament will be relevant to a lot of researchers who are looking at ALS. So I think we've got some groundbreaking science here. And this is where Biogen has had the resilience to go after a lot of significant unmet need that has resolved things in a way that not everybody has been able to do. Next slide, if I could. We've got a number of milestones coming, as you can see here on the slide. By our Q2 call, We would expect to be in a different place with Lekembe. We should hopefully have the PDUFA date behind us successfully. Hopefully, we've received traditional approval and broader CMS coverage in the U.S. And, of course, we'll be communicating more about our Fit for Growth cost optimization program. By the end of this year, hopefully, we've got the first ex-U.S. approval of Lekembe in Japan. And hopefully we'll have received the approval for Zoranolone in both MDD and PPD, as well as having completed a three-month DEA scheduling period and initiated the launch. And if I look further ahead by the end of this time next year, I think we have an opportunity to build a global footprint of LeCambie with approvals in Europe and China. And, of course, we'll take the next steps on evolving the treatment paradigm in Alzheimer's disease with an expected regulatory filing of can-be maintenance dosing. We would also expect regulatory filing for subcutaneous dosing, which could facilitate at-home administration. So, in conclusion, through a combination of groundbreaking science, high-potential near-term commercial opportunities, and diligent capital allocation, I think Biogen is going to be well-positioned for the sustainable long-term growth. I'd like to now hand it over to Priya for an update on our progress in R&D.
spk07: Thank you, Chris. Last quarter, we made important progress advancing key pipeline programs. As Chris just pointed out, we now have the opportunity to deliver three potential new drug launches across four indications this year. all in areas of high unmet need, including Alzheimer's disease, major depressive disorder, postpartum depression, and SORD1 ALS. We also continue to evaluate potential opportunities for geographic and indication expansion for Xuranolone as we work with our collaborator, SAGE, to prepare for a potential U.S. launch later this year. I will share key highlights from the quarter across broader efforts in Alzheimer's disease with the person program in SOD1 ALS and the progress that we're making to rebalance the risk profile and improve productivity of the R&D pipeline. I will now share highlights of additional analyses ESI recently presented or published consistent with both companies' commitment to transparency. First, Regarding activities of daily living, new analysis of ADCS MCI ADL presented at ADPD last month showed that all individual items of this scale favored Lekembe at 18 months as compared to placebo. This includes items like ability to make a meal or keeping appointments. This result also mirrors clarity AD study outcome on the CDR summer boxes. where Lecambi treatment slowed decline across all six individual domains at 18 months versus placebo. Additionally, results from CLARITY-AD showed that at 18 months, Lecambi treatment resulted in a 50% less decline from baseline on scales designed to assess quality of life and reduced care partner burden as compared to placebo. In addition, was also presented an updated analysis of ARIA from the CLARITY-80 study to evaluate ARIA incidence in Lekembe-treated participants on antiplatelet or anticoagulant drugs as compared to Lekembe-treated participants that were not on either. The results were encouraging and showed that ARIA incidence was similar in the two groups. In addition to the data presented at ADPD, newly published analyses from LeCambie Phase II study reinforce the finding that while plaque levels begin to return slowly after treatment discontinuation, other biomarkers of AD biology, such as plasma A-beta 42 to 40 ratio, reaccumulate quickly. We believe these findings further support the potential benefit of continued treatment with Lekembe after plaques have been removed. Building on their prior work, ESAI published a new analysis of the long-term health outcomes associated with Lekembe treatment. Updated analyses incorporated data from the Phase III Clarity 80 study, replacing the prior modeling that used Phase IIb study results. The analysis of the Phase 3 data, consistent with the analysis of the prior Phase 2B study results, showed that Lecambi resulted in a delay of approximately two to three years in meantime to progression to mild, moderate, and severe AD dementia versus standard of care alone. We believe these results build upon and reinforce the significant body of evidence that has been generated on Lecambi. Biogen is committed to building on its deep expertise and experience in Alzheimer's disease by advancing an industry-leading Alzheimer's pipeline that is diversified across therapeutic modalities and molecular targets. This includes focusing on tau, intracellular neurofibrillary tangles, which represent a pathological hallmark of Alzheimer's, are composed of hyperphosphorylated tau protein. Unlike amyloid blocks, which are observed to build up in the brain years before the onset of cognitive symptoms, tau tangles are more closely related to the neuronal cell loss and onset of clinical symptoms. To address tau pathology, we are advancing BIB80. and antisense oligonucleotide targeting tau mRNA, aiming to reduce all forms of tau protein. Importantly, this is a very different approach than utilizing a tau-directed antibody, which is hypothesized to target only extracellular tau. We were encouraged by the early results of this ASO-based approach as evidenced by the BID-80 Phase 1b data in Alzheimer's disease, which was presented last month at ADPD and also published in Nature Medicine, which went live online yesterday. Phase 1b data shown here on the slide BBAT was generally well-tolerated. Majority of adverse events were mild or moderate in severity, of which the most common were headache, back pain, and post-lumbar puncture syndrome. We observed a time- and dose-dependent reduction in CSF total and phosphatau across the multiple ascending dose and long-term extension periods. Total tau continued to decline 16 weeks following the last dose in the MAD portion of the study, both in the high-dose Q4 weekly and the Q12 weekly groups. And we saw a 50% reduction from baseline. We observed an effect on neurofibrillary tangles as visualized by our tau pair as early as 25 weeks across all brain regions assessed. Reduction in tau burden in all treatment groups at the end of the open-label extension at 100 weeks. The BIB-80 study is the first to demonstrate this magnitude of tau PET reduction across brain regions. Encouraged by these early results, we continue to enroll the Phase 2 CELIA study of VIV-AT in early Alzheimer's disease, where we are exploring different dosing regimens, including every 12-week and every 24-week dosing. Last month, an advisory committee by the FDA met to review the Tofersen data in SOD1 ALS. The advisory committee unanimously agreed that reduction in plasma neurofilament light is reasonably likely to predict clinical benefit of Tafersin for the treatment of SOD1 ALS. And they also reached a consensus that the benefit-risk profile was favorable. As Krish mentioned, Biogen has spent years collaborating with the scientific community to characterize neurofilament as a marker of axonal injury and neurodegeneration, and we view the outcome of the advisory committee as a significant advancement for the field. We believe these developments also inform our other programs in ELS. including BIP-105, an antisense oligonucleotide targeting ataxin-2, which may have therapeutic potential in the broader ALS population. BIP-105 aims to reduce ataxin-2 protein levels, which we hypothesize will reduce toxic TDP-43 clusters that are observed in nearly all people living with ALS. Preclinical experiments confirm that reduction of ataxin 2 levels modified survival and function in a mouse model of TDP43-ALS. The Phase 1-2 study of BID105 in ALS is expected to read out early next year. We continue to advance our R&D prioritization efforts with the goals of optimizing the value that our pipeline can deliver. This includes investing in areas where we have a strong conviction in the disease biology. We continue to invest in further data generation for Lakembi and Zuranolone and remain focused on executing key clinical studies, including BIP-80 and BIP-105, as well as for litophilumab in lupus. We also made the decision to opt in to Denali Antibody Transport Vehicle A-Beta Program. With the ATV A-beta, we aim to safely increase exposure of A-beta antibody in the brain. This may enable improved plaque clearance and or lower incidence of ARIA. We are also deprioritizing programs based upon our integrated view of development, regulatory, and on commercialization challenges. Recent updates include that we decided to terminate involvement in the development of BIP-93 programs in large hemispheric infarction and brain contusion due to operational challenges and strategic considerations. We decided to pause initiation of the Phase 2b study of BIP-131 in acute ischemic stroke as we reassess whether we need to initiate the study. We discontinued bib 132 in spinal cerebellar ataxia type 3. We previously announced that we had refocused our investment in gene therapy, and we will continue to look to advance technology associated with the safe delivery of these therapies to the right targets in the body, which we believe is one of the most critical scientific and technical challenges that is currently associated with this modality. We also had previously announced that we exited ophthalmology research with goals of reallocating resources to areas where we believe there is a greater probability of success. This will be an ongoing process involving dynamic scientific prioritization and investment based on an ongoing assessment of probability of success. But we expect to complete our initial substantial review by mid-year. In conclusion, Biogen has had a significant number of accomplishments this past quarter, which we believe highlight the ability of our R&D organization to capitalize and deliver on groundbreaking science in the pursuit of new medicines for patients. With key assets in areas like Alzheimer's disease, depression, ALS, and lupus, We believe the Biogen pipeline has the potential to deliver significant growth over the medium and long term. I will now pass the call over to Mike for the financial results.
spk06: Thank you, Priya. Good morning, everyone. So, I'll provide some highlights of our financial performance for the first quarter, and please note that all financial comparisons that you will hear are versus the first quarter of 2022. Total revenue for the first quarter was $2.5B and that's a decrease of 3% at actual currency and it's flat at constant currency. Non-GAAP diluted earnings per share in the first quarter was $3.40, a decrease of 6%. Total MS product revenue was $1.1B, a decrease of 19% at actual currency and 17% at constant currency. I'd like to provide a few points here regarding MS during the quarter. In the U.S., we continue to see the impact of tech for their generics declines in the interferons and competition for Tysabri. As we noted in our last call, Q1 is typically a seasonally weaker quarter for our MS business in the U.S., and that's driven by higher discounts and allowances and some channel dynamics. And as it relates to channel dynamics, We did see a greater than expected decrease in channel inventory, which added a few percentage points to the overall global decline. We believe this is likely related to tighter working capital management and wholesalers and specialty pharmacies due to the rising interest rate environment. In addition, Vomerity is being impacted by both pricing pressure and a contraction of the oral segment of the market in the U.S. And as a reminder, in Q1 of last year, Vomerity did benefit from a favorable Medicaid-related sales adjustment, which also impacts the year-over-year comparison. As far as Europe, as you know, we received a favorable decision relating to the Tecfidera regulatory data and marketing protection in the EU, and that was assumed in our guidance. So, we believe that TechVidera is entitled to regulatory marketing protection in the EU until at least February of 2024, and we are working to enforce this protection. I would add that we did expect it would take some time following the decision for all generic products to be off the market, and we are assuming that this exit will accelerate in the near term. Separately, we continue to enforce our patent, which expires in 2028. So, as we look toward the remainder of the year, we do expect to see a slower rate of decline on a year-over-year basis versus what we saw in Q1. We've taken some actions which aim to improve the underlying revenue trajectory for our MS portfolio in the second half, including for Vimerity in the U.S., and we're continuing to closely monitor the underlying market dynamics in MS closely. Moving to SMA, global Spinraza revenue of $443M was a decrease of 6% in actual currency and 2% in constant currency. In the U.S., Spinraza revenue decreased 10% due to fewer new patient starts and some channel dynamics as compared to the first quarter of last year. However, we do continue to see what we believe are signs of stabilization in our patient base. Outside the U.S., revenue for Spinraza decreased 4% at actual currency and increased 2% at constant currency, with competition more than offset by the timing of shipments in certain markets. Biosimilar's revenue was $192 million, and that's a decline of 1% at actual currency and an increase of 4% at constant currency. And that's due to volume growth driven by the launch of our BioViz product, partially offset by continued pricing pressure for our anti-GNF products in Europe. Alzheimer's disease revenue, which includes revenue from Adjahelm and the Lekembe collaboration, equated to a headwind of $18 million to revenue. As a reminder, beginning this quarter, our share of Lekembe commercial expenses in the U.S. is recorded as a component of revenue, thus the negative number this quarter. And for this line item, we expect this to continue to be negative in 2023 as ramping LeCambie commercialization expenses throughout the year are expected to exceed initial revenue. Total anti-CD20 revenue of $399 million was flat. Revenue from Okravis royalties increased 12%, which was partially offset by a 25% decline in revenue from our profit share on Rituxan, and that was driven by biosimilar competition. The anti-CD20 revenue line also included a $10 million operating loss related to Lensumio. I'd note that our R&D expense for Lensumio is also recorded as a component of the anti-CD20 revenue line. Important to note that starting in the second quarter, our pre-tax profit share percentage on Rituxan, Gizaiba, and Lensumio will decrease From 37.5% to 35% and that sales targets for as part of our contractual agreement with. Contract manufacturing royalty and other revenue of 319Million dollars benefited from the timing of production of some contract manufacturing batches, which includes. Well, this line tends to vary from quarter to quarter. We do not expect this level of contract manufacturing revenue to continue throughout the remainder of 2023. A couple of details regarding Q1 expenses. For the first quarter, non-GAAP cost of sales was $663 million, or 27% of revenue. This includes $45 million of idle capacity charges, which ASI no longer shares. During Q1, we did see pressure on cost of sales associated with product mix. We saw increased contract manufacturing revenue, which has a higher cost of sales, including manufacturing revenue for LeCambie, which is at minimal gross margin. We continue to expect our cost of sales as a percentage of revenue for the remainder of the year to be higher than the 22.4% that we saw for full year 2022, and that's primarily as a result of product mix and idle capacity charges. First quarter non-GAAP R&D expense was $571 million, and that compares to $552 million in the first quarter of last year. Non-GAAP SG&A was $603 million, and this compares to $635 million in the first quarter of 2022. The decrease in non-GAAP SG&A expense was driven primarily by cost savings initiatives which, importantly, were partially offset by investments to support new product launches and $31 million related to the termination of the co-promotion agreement with ASI for Biogen's MS products in Japan. We continue to expect operating expenses to be lower in the second half of 2023 than in the first half. And as Chris mentioned, separate from the previously announced $1 billion cost savings initiative, we have initiated our Fit for Growth program in order to align our cost base with expected revenue while also investing in our growth opportunities. And we expect this program to have a modest impact on 2023 expenses and a more meaningful impact in 2024 and beyond. And we'll have more to say about this on our second quarter earnings call. As for our balance sheet, we ended the quarter with $6 billion in cash and marketable securities, $6.3 billion in debt, and roughly $300 million in net debt. Subsequent to the end of the quarter, we received approximately $813 million related to the sale of our equity stake in Samsung Biowepis, which is not included in these cash figures. And this payment is the second payment. Related to this transaction, which closed around this time last year, and we're expecting a 3rd payment of approximately 438Million dollars in April of 2024. In the 1st quarter, we generated 455Million dollars in cash flow from operations. CapEx was 67Million dollars. Free cash flow was 389Million dollars. So, overall, we remain in a very strong financial position with significant cash and financial capacity to invest in growing the business. Over time, let me now turn to financial guidance for full year 2023. we are reaffirming our full year guidance of a full year 2023 revenue decline in the mid single digit percentage range as compared to 2022 reported results. And full year 2023, non gap diluted earnings per share of between 15 dollars and 16 dollars. And I would refer you to our press release for other important guidance assumptions. So, in closing, Biogen continued to make strong progress against our business priorities in the first quarter. We remain focused on three potential launches in 2023 while continuing to be diligent in prioritizing our R&D pipeline, optimizing our operating model, and also evaluating external opportunities. We expect that execution of these priorities will position us well for returning Biogen to sustainable growth and creating long-term value for our shareholders. And with that, we will now open the call for questions.
spk10: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, please limit yourself to one question. If you require any further follow-up, you may press star 1 again to rejoin the queue.
spk08: Our first question comes from Phil Nadeau of TD Cone.
spk10: Please go ahead.
spk18: Good morning. Thanks for taking our question. Our question is on what can be reimbursement. What is Biogen's expectation for reimbursement post full approval? Do you expect coverage with evidence development or some other form? And second, when do you think that will be clear? CMS has suggested that the coverage will be revised on the day of approval. Is that going to be the final determination, or will there be subsequent revisions after that?
spk09: Thank you. Chris, do we have you? Do you want to start?
spk05: Yeah, I hope that I got off mute. Yeah, thanks, Phil. Nothing really new to report there, at least as far as CMS. CMS has said that following full approval that they will be making sure that the product is broadly available. I think there will be a question of registry, what type of registry, is there a cap on the registry? That hasn't been defined at the moment. I think what really is encouraging is that we're seeing an awful lot of support being mustered and encouragement of CMS to reimburse. As I noted earlier, the American Association of Neurologists has come out strongly in favor. As a reminder, they sided more with CMS at the time of Andrew Helm, so this is a change in position. Over twice as many members of Congress have written to CMS than did for Andrew Helm. And, you know, some of you may have been following the budget discussions in Washington and Congress. with also an encouragement for CMS to make the product available. So we continue to believe that the product will be made available. We would hope that it's not with a registry. There's no real need for a registry, and we don't really see why this product wouldn't be reimbursed like any other product for Medicare.
spk09: But we're probably not going to see anything until after the producer date.
spk08: We will now take a question from Paul Matys of Stiefel.
spk10: Please go ahead.
spk17: Thanks so much for taking my question. I wanted to follow up a little bit more on external investments as it relates to reshaping your pipeline. Chris, you've outlined rare disease psychiatry and immunology historically. It would seem like if you're going to decrease the risk profile of your R&D strategy that immunology and rare would be more on the developmental side. Whereas for a psychiatry asset, you'd want something that was either clinically de-risked or commercial. Is that the right way to think about it? And what's your appetite today for transacting before shoring up everything in-house? Thank you.
spk09: Thanks, Paul.
spk05: No, I think you've got that correct. I mean, you could certainly look at some tuck-in acquisitions on the rare side. We have, as I noted earlier, appointed Adam as head of corporate development and business development. I think another key figure will be the appointment of a new head of research. And I would hope to have that person in place at least by the end of the summer. And that person, along with Priya and Adam, are really going to be the three that I'll be working with to think about, certainly from a licensing point of view. In terms of more transactions, I think we would be more inclined to find something that is revenue generating in the near term. If you look at Biogen, really from 2025 onwards, I think the company has an ability to grow pretty significantly. But in the next couple of years, that's where we're in this, the tide going out on MS and the tide coming in on new products. We obviously have a lever with cost that we can use, but external growth could also help us to manage that transition period.
spk08: We will now take a question from Jeff Meacham of Bank of America.
spk04: Good morning, guys. Thanks so much for the question. Chris or Priya, on VIT-80, we've seen a lot of Tau assets. underwhelmed, you know, in trials as a monotherapy. And you guys, though, are in a unique position to assess TAL along with LeCambie. So, the question is, you know, what do you need to see and face to, you know, to advance a combo and strategically, how much of a priority do you think this would be? Thank you. Maria?
spk08: Yep.
spk07: Thanks Jeff. Great question. So I'll just step back and say, you know, obviously, Alzheimer's disease is a very complex disease with multiple biologies and complex pathophysiology. We do see ourselves as pioneers in this space, you know, and we have been with demonstrating the A-beta plaques as being central. And now we've kind of shifted gears to looking at tau. As you know, we had a lot of experience with extracellular tau, and this was actually not successful because BIB92 didn't work, which was gothrinumab. And we have really focused now on knocking down all post-translational isoforms of tau. So that's what BIB80 is aiming to do. As we've shared, I mean, obviously these numbers are small in the Phase 1B study that, you know, went online in a publication yesterday in Nature Medicine. But very encouraging because we have seen close to 50% reduction of total tau and a sustained reduction post-dosing. So this is very encouraging. As we kind of think about Alzheimer's leadership and we think about multiple therapies, we have to assess How town knocked down kind of translates into clinical outcomes. How much is fired? Because, you know, when you look at the mouse models, transgenic mouse models for Dow, you do see that about 50%. Actually can rescue your own cell loss and memory. It's encouraging, but we need to see more data from patients. That's exactly how we're approaching it. Eventually, I think, you know, we do believe strongly that this is going to be a multi-modality space, and patients will probably need more than one therapy. Now, whether it will be combination or which, you know, where you have to determine whether it's synergistic or whether it could be additive, that remains to be seen. And I think we're going to let the data drive us. On many of these questions, but we're looking at all of this very, very carefully right now. We're focusing on down all. Uh, as well as our phase 1 assets, which has been 1, 1, 3, which is looking at preventing. So, that's how we're focusing our efforts.
spk05: I could just follow up on that though. I think I mean, this is, you know, noted that we've been through the pipeline and we have deprioritized some programs. But that's not just in an effort to reduce cost. It's really to be able to focus resources on those assets that we think are most promising. I can tell you following the announcement of these results in Sweden and then also publication of the article in Nature, there's been a lot of attention on Vib80, particularly from neurology community. And I think this is one of those assets that we really want to focus on. We've actually already allocated more resource to accelerate this program. And as Priya said, this is really one of the first manifestations of what it means to build a leadership position in Alzheimer's as opposed to just launching one product in this space. You know, most complex diseases do end up being combination therapies. And, you know, there is some likelihood that that'll be the case in Alzheimer's. And to your point, I think Biogen is pretty well placed in that regard.
spk09: And we're certainly getting even external interest in this program.
spk08: We will now take a question from Salvin Richter of Goldman Sachs.
spk10: Please go ahead.
spk01: Good morning. Thanks for taking my question. On Lakembi, could you discuss your strategy here with respect to infrastructure, particularly infusion centers and testing, post a potential full approval and assuming broad coverage by CMS?
spk09: Sure. Thanks for the question.
spk05: You know, one of the most interesting things is that, you know, the companies actually went through a launch planning process with Aduhelm and actually commissioned a study to actually have a look and understand what the learnings of that are. And there's an awful lot of chicken and egg syndrome going on here. Until there's been an approved therapy and reimbursement, there often isn't enough investment in other areas. We see this with blood-based diagnostics, for example. They've been around, but there's no market for a blood-based diagnostic until you actually have an approved drug and a treatment. And the same is true really for the investment in infusion capacity and PET scans and lumbar punctures and even the neurology capacity. So, you know, what we certainly are seeing is that there is a lot more interest. There are a lot of parties who are looking to invest in some of this infrastructure. But right now the world is almost in a point of, well, the starting gate is really CMS approval. One of the things that we also learned was you want to flex your commercial investment with the ability of the system to actually meet patients. I think one of the things that we would do differently and are doing differently is that at the time Biogen ramped up a huge commercial machine. in advance of reimbursement and in advance of some of that expansion. As we work with ASI, we're being a lot more prudent in looking at, okay, let's make sure we're out there, we're educating physicians, we're thinking about who's the right patient for this, and working with the different centers to make sure we know which centers have the ability to see patients and process the patients with this. with this complex treatment paradigm. So it will expand, and I think some of that expanded already at the time of Aduhelm. But I do think that we'll see, we'll get a better sense of where that's going once we have the confirmation of CMS's reimbursement.
spk08: We will now take a question from Yuma Rafat of Evercore.
spk15: Hi, guys. Good morning. Thanks for taking my question. I thought I would get some clarity on the minus $19 million in collaboration profit share on Lacanumab. And specifically, is there any color we can get on what the end user revenues could look like from this minus $38 million for the franchise for 1Q? Even if it's a fraction of $1 million, it would just be very helpful. And also, has ESI indicated to you on where they are or what percentage of the commercial build-out has already been baked into this 1Q number or not? Because you can imagine there's a lot of investor concern around how much SG&A they could possibly build into this collaboration, especially in light of some of the concerns around the strained relationship from the past, et cetera. Thank you very much.
spk05: Thanks, Umar. Mike, do you want to take the first part of the question, and I'll talk about the commercial infrastructure?
spk06: Sure. No, happy to. So, Umar, you know, as you know, the line item that you're referring to is the net of any revenue and commercial expense divided by two, basically, as you noted. And we don't have a number that we're going to disclose on the revenue. What I can say is there was revenue during the quarter. It was minimal. The majority of patients on drug are cash pay. There's not reimbursement yet, as you know, and I think the real game, so to speak, starts when we have reimbursement, should we get approval and get to that point. So, yes, revenue was minimal. The majority of it was cost divided by two, and I'll let Chris speak to the ramp from here.
spk05: Yeah, thanks, Mike. You know, just in terms of relationship, you know, I was in Japan last week, and the CEO of ASI and I had dinner, and I think I think our view is that the relationship and the partnership is actually working pretty effectively around the world. And, you know, as I said earlier, and I've said on a number of occasions, this is not a reach and frequency launch. So let's not think about the fact that we're just sending reps out and then that's going to have some impact directly on sales. There is an awful lot of certainly education that's being done. We actually... ASI has already reps out there in the field in the U.S. We as Biogen will likely add reps at some point in the future, perhaps as early as next year, once reimbursement situation is known and the capacity increases. As I say, one of the lessons that we have to learn is that you don't want to get ahead of that. The initial launch period is going to be really one that's constrained by the capacity. And so there's an awful lot of work working with the neurology community to educate how you diagnose a patient, the whole process in a practice of when do you get the PET scan or the lumbar puncture, how do you schedule the MRIs, getting the reimbursement, understanding where the infusion centers are. So it's a pretty high-touch cell and customer relations at the start. As I say, there's an initial investment. There'll be a second wave of investment once the CMS decision is known, and then probably a third wave of investment as the capacity builds and the patient numbers increase.
spk08: Our next question comes from Tim Anderson of Wolf Research.
spk11: Hi, thank you for taking our question. This is Alice Nettleton, on for Tim Anderson. Just on Alzheimer's, so we're wondering what is Biogen's working assumption on how the profile of Lillies to Nanomab will look relative to Lekembe? And past data would suggest it would be less safe with efficacy about the same. Is that how Biogen views the most likely outcome? Thank you.
spk09: Thanks for the question.
spk05: I don't think we really look at it that way. I think that the world changed with the CLARITY study. If we went back two years ago, three years ago, a lot of still doubt amongst the neurology community. Does the amyloid beta hypothesis really hold water? There's been a huge debate within the community about whether that's a valid target or not. Clarity, I think, really starts to put that debate to rest. But the studies were done over, in the case of Clarity, an 18-month timeframe. But actually, what we're seeing is that the world has moved on. Those 18 months, yes, we dramatically reduced plaque. And we actually see that there is a benefit in terms of slower cognitive decline. But, you know, that's not where it's going to end. In all likelihood, the way this is shaping up is that you're going to have at some point a plaque clearing phase. Then what happens after you've cleared the plaque? If you don't continue treating, the plaque is going to come back. So there's going to be, in all likelihood, a maintenance phase. That's where also the sub-Q formulation will be important. And then, as we all know, MCI is not really early stage Alzheimer's. By the time you have MCI, by the time you have symptoms, you probably already have a maximum load of plaque. There are probably people on this call who are accumulating plaque in their brains as we speak, and they don't know it. And by the time a certain amount of plaque has arisen, then you've already had a certain amount of neuronal death. And right now we don't know how to restore neurons. So, you know, there's also going to be with the advance of blood diagnostics, but also even a side biogen study ahead and looking at earlier patients. As one neurologist said, we're not looking at this any longer as a four to eight year disease, but we're looking at this over the timeframe of a 25 year period. So if I look at the nanomab, You know, fine. In some ways, it'll be good if their data are positive, that it further reinforces the beta amyloid hypothesis. And also, you know, we've always seen in new markets, if there's more players, that those markets develop faster. But this, the nanomab thought process of I'm just treating to a certain amount of plaque reduction, You know, most neurologists I talk to don't believe that fits anymore with the way we're thinking about the treatment of Alzheimer's. So I think it'll be there, but I think it's going to be, it's not really going to be adapted in the same way that people thought when that study was conceived. So, you know, let's say I think it'll be good if there's other players in the market, but I don't think we are too concerned about competing with the nine of them.
spk08: We will now take a question from Michael Yee of Jefferies. Please go ahead.
spk19: Hi. Thank you. Good morning. We had a question around your expectations post-reimbursement around the Lakembi launch. Appreciating you can't give too many specifics, but how should we think about that in the context of consensus modeling 40 to 45 million and 400 for next year? Maybe you could help right-size how things start off, whether there's a bolus or a number of patients ready in the queue, and in the context of how we should be modeling the next four to six quarters.
spk09: Thank you. Yeah, I wish I could give you some more guidance on that.
spk05: As I like to say, I'm pretty confident in the three to five-year outlook. The next 18 months are a little bit more difficult to model even for us. um you know there is an awful lot of interest um there probably will be some queuing um there is going to be a question around the um how quickly can the system uh flex uh the way i would think about it is and the way i i look at biogen is um i think xeran alone actually is a product that can actually contribute faster to our sales growth in 2024 um and i i do think that one Yes, it's a paradigm shift, but there's a clear patient benefit, and we don't have all of the infrastructure challenges to overcome. So to me, I look more to the impact of Zoranolone next year, and we'll be able to give a lot better idea by the end of this year once we see what's the initial takeoff in the first six months once CMS issues its reimbursement.
spk08: Our next question comes from Robin Karnowskas of Truist Securities.
spk14: Hi, thanks for taking my question. And all the colors are very helpful. So just on if there is a registry, can you just talk to if you would foresee a registry being, how much of a bottleneck it might create? How might it be paid for? And, you know, so help us when we see that decision, understand what the challenges would be or it may not be as cumbersome as some might think.
spk05: Well, there are certainly versions of a registry that are not particularly cumbersome and the devil is going to be in the detail. You know, that's why, again, we would hope that actually CMS reimburses this product just like any other product. When you think that diverse and underserved patients in the healthcare system suffer disproportionately more in Alzheimer's, it would seem that increasing the barriers for those patients by the need for navigating a registry would be highly unfair to those patients. But we'll wait and see. Our belief is that the data from CLARITY are extremely clear. The benefits are by no means limited to what you see in the CDR sum of boxes. As Priya said, when you look at those activities of daily life, which are evaluated by people who are with these patients every single day, and you have a half dozen measures, and each one of them individually is statistically significant. That says to me that, and versus placebo, this says to me that the people who see these patients every day understand the benefit of this new medicine and treatment. And so, you know, I think the data are compelling and we would hope that there isn't a registry. And if there is a registry, that it is minimally cumbersome for patients and their caregivers to navigate.
spk10: We will now take a question from Mark Goodman of SVB Securities.
spk02: Morning, Priya. Maybe you could just help us with what's similar about these programs that were stopped. I mean, obviously there's a few in stroke and a few others, but what is similar there? And it was interesting, strokes in phase three. So does that mean that we could see some other late stage assets that get cold from the pipeline? Just philosophically, just big picture, how you've thought about these decisions. Thanks.
spk07: Sure. So the way we've thought about these decisions is really we're looking at every program in great depth and, you know, several times over and thinking about what are the options, what are the operational and strategic and regulatory challenges, but also opportunities. And so really it's an integrated view of where we believe that our resources would be better applied to other programs. in our portfolio currently. That is, I would say, the common denominator across all the decisions that you're hearing from us today. We believe that we should be spending time elsewhere. Now, having said that, you know, you said the BID93 is in phase three. I can't really comment on what might be the outcome, but for now, we are really discontinuing development.
spk08: We will now take a question from Terence Flynn of Morgan Stanley.
spk12: Great. Thanks so much for taking that question. Maybe a follow-up for Chris on Zorana Loan. I think during your prepared remarks, you noted that this asset's underestimated and based on your answer to a prior question, it sounds like, you know, potentially you think there's could be some upside to numbers. So should we read that as that's a takeaway that you think there's upside to outer year consensus estimates here for that asset? And then just any update on the commercial footprint in terms of the build and what that might ultimately look like over time. Thank you.
spk05: Yeah. Thanks, Mark. It is interesting when I look at it and I, you know, I take what analysts and investors say very seriously. But I definitely see that as a company, we see a much higher potential for Zoranolone than what the streets has. um and i've tried to figure out why there is that gap haven't really come up with a good answer other than i i think the investment community has been so focused on things like rare diseases and oncology we've got some very clear biomarkers got some very precise medicine precision medicine is a big thing in both of those fields and we're back into primary care we're back into a disease state that, you know, has a lot more challenge in actually diagnosing, even as you look at different indications. For instance, we take something like bipolar depression and major depressive disorder and general anxiety disorder. And, you know, these things are often seen in the same patient. And indeed, when you actually talk to psychiatrists, they'll tell you that this is truly personalized medicine. Psychiatrists tend to be less swayed by guidelines, by what KOLs say, and more about understanding the individual patient needs. So this is not what people have been used to looking at. It's all clinical data and everything else. And so I think from a commercial model point of view, the market is having a little bit more difficulty understanding how does a physician make a decision about their patient. I can tell you is that we've talked to a lot of patients. We've had patients into our global executive committee. We've had physicians talk to our global executive committee. It is a much different approach than certainly what our company has been used to in terms of dealing with neurologists. But what is also really clear is that there is a significant unmet need. Patients cycle through therapy. They're not adequately satisfied by those therapies. There's an awful lot of stigma here and staying on medicine only reinforces that stigma. I've talked to physicians who say, we have people coming into the emergency room and we can't help them. There are no beds. We give them an SSRI or something like that and hope that someone is going to watch them for six weeks. The fact that you can have a medicine that responds quickly You know, if you're in a depressed phase, this is a very dark part of people's lives. And when you hear the patient stories about how suddenly their life has changed, we had a patient who'd been suffering on and off for almost 20 years, a mother of three children, grandmother of five children. And, you know, within days she felt better. She's gotten her qualifications as a fitness instructor. She's going now for a pilot's license. I mean, this is really transformational for so many patients. And that's what I really go by. And, you know, another way I look at it, Mark, is I look at when you're recruiting salespeople. We have 27 roles, the first-line manager roles in our field force that we're looking at. we had over 4,000 applications for those roles. And these are people who are working for great companies and supporting great products. And I remember when we were launching Obagio, and there weren't high expectations of Obagio, but boy, when we built that field force, we were able to recruit a great team. And salespeople do their own diligence. They tend to want to be a part of medicines that they see as important. So I see a lot of signs where I think this is going to resonate with the patient. It is certainly resonating with the salespeople and folks that we are recruiting. And I certainly hear it from a lot of key opinion leaders. So, you know, it's hard to, the only thing that I see where there's a note of caution is that, you know, it is clearly a paradigm shift and I like to say it's easier to change your spouse of 20 years than it is sometimes a physician's prescribing habits. But because physicians do rely on their experience, I do think there is a major unmet need here. And I actually think there's an awful lot of potential. I'm very excited about this product. I think if I just listen to patients, I always like to say if there's an unmet need, and I can see a differentiation versus existing therapy, you know, the drug will be a success.
spk08: Our next question comes from Jay Olson of Oppenheimer.
spk16: Thank you for the update and congrats on all the progress. Could you talk about the ideal capital structure for Biogen and how much incremental debt could you take on for the purpose of business development? Thanks for taking the question.
spk09: Mike, do you want to take that one?
spk06: Yeah, I'll take that one. Thank you for the question, Jay. So, you know, we ended the quarter with about $6 billion in cash. And as we mentioned, we received the payment from Samsung for roughly $813 million subsequent to the end of the quarter. So we're approaching $7 billion of cash on hand. Our EBITDA level is roughly $3 billion, and on a gross debt basis, we've got roughly two turns. Obviously, net debt is close to zero. It's actually negative if you pro forma for the Samsung payment. So there is incremental room. I think that just illustratively, if you added a turn of leverage, you'd be at three times gross. You'd still be very modest net, and you add that to the cash, that puts you kind of north of or in the zip code of about $10 billion that you've got of kind of dry powder, so to speak. I wouldn't suggest that we would, you know, add incremental debt just to add it, but, you know, for the right opportunity, the right BD opportunity, et cetera, I think we've got a lot of flexibility in our capital structure.
spk09: We know you all have other calls to get to, so, Operator, can we please take one more question?
spk08: We now take a question from Colin Bristol of UBS.
spk13: Hey, good morning, and thanks for squeezing me in. And also, welcome, Chuck. We're excited to be working with you again. So on subcut Lekembe, what has FDA specifically said is required for approval? And then can you just speak to how important the subcut formulation is to the commercial story? What proportion of patients would it allow your access to that the infusion will not? And then just sort of a subpart on the commercial part, the VHA is excluding APOE for homozygote. Can you just speak to the risk that you see either as a labeling or commercial risk on full approval and as access broadens? Thank you.
spk07: Okay. Thanks, Colin. I can start. Yes. I can start with the subcutaneous formulation. So the plan is on track and has said that they would be filing by Q1 2024 just to back up the evaluation is being conducted in the phase 3 open label extension by a subcutaneous study. And ESA has also stated that they have discussed the requirements for proceeding with this filing and generating the data and then subsequent filing with FDA and other regulators. And they believe that the strategy currently does allow for an evaluation of PKPD and safety, which would be required. I'll move to the next aspect. I think that you asked was about the APOE4 homozygote. So, Isai presented some of these data at ADPD and also made comments on this topic. And they believe that really the data set was rather small. The number of APOE4 homozygotes was quite small. They don't believe that the overall conclusions are different in terms of clarity AD and, you know, confidence in the data. The other aspect here to keep in mind is that actually many of the secondary endpoints favored LeCambry. So, there could be a component of placebo not declining as much in this comparator group, and that was one of the points that they made as well. Now, with regards to the commercial, you know, view on subcutaneous, I'm going to turn it to either Chris or Mike.
spk06: Yeah, I mean, I think on, you know, the- Go ahead, Mike. Go ahead, Chris. Yeah. No, I was going to say, you know, on the commercial view of subcutaneous, you know, this will be kind of groundbreaking and then we'll have to see how that how that plays out over time as patients with Alzheimer's along with their caretakers are maybe moving to more of a maintenance mode. For their treatment, this could be something that could be very valuable and particularly for patients who have a distance to travel to get to an infusion center to be able to self administer at home and something that we think could have a lot of potential. So more to come on that over time. We'll expect to hear more about it over the next 9 or so months. And we think it could be an important differentiator if it comes together.
spk05: I mean, just for what we're everybody now. I was just going to add, Chuck, we don't really see the biweekly infusion as being a liberator right now for that plaque infusion. But it does, as Mike said, as we think about if we are able to get a maintenance indication and we are able to get blood diagnostics, you know, the length of time that a patient will be on drug potentially will change in future. And then, therefore, the sub-Q would certainly make a difference in that scenario. Back to you, Chuck.
spk03: Thanks, Chris. So thank you all for your attention this morning. You can always follow up with the investor relations team, and this will conclude our call.
spk10: This concludes today's call. Thank you for your participation. You may now disconnect.
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