Biogen Inc. (BIIB) Earnings Call Transcript & Summary

Good morning and welcome once again to Cowen and Company's 40th Annual Health Care Conference. I'm Phil Nadeau, one of the biotech analysts here in Cowen, and it's my pleasure to moderate a fireside chat with Biogen, one of the bellwethers of the industry. We're happy to have with us today, Michel Vounatsos, the CEO; as well as Joe Mara from IR; and Jeff Capello, the CFO, here in the front row.

Michel, maybe you can start with just giving us your vision for Biogen over the next 5 years. How is the company going to create shareholder value? And what will differentiate it as investment versus the other large caps?

So good morning, everyone. I'll be -- might be making some forward-looking statements or -- that contain risks and uncertainties, so I refer back to our SEC filing. So concerning the next 5 years, first, we need to deliver in the short run and also be prepared for the longer term. I see the company being a leader in neuroscience and I see the company in a position to build a multi-franchise portfolio from where we stand today on MS and SMA and biosimilars, being much more diversified into that space of neuroscience and being the leader while other companies are running away from that space, where the unmet medical need is tremendous. I see Biogen very well positioned, actually, to deliver significant value to the shareholders. And this might be potentially driven mostly by the Alzheimer's franchise that we are building, and we are very excited about this opportunity. The base business is strong and should remain strong, being MS, that is -- that has demonstrated resilience; SMA and biosimilars, that has demonstrated significant growth opportunity. The time for neuroscience is now. The epidemiology is tremendous and science is breaking. And this is today the #2 cause of mortality and the #1 cause of medical needs and requirements for the society. So the unmet medical need is huge. We are at an inflection point where we have 11 readouts, mid to late stage in the next 18 months. So this portfolio or this pipeline that we have built rigorously and cautiously over the last 3 years is maturing. And we have some important readouts in the coming period that are very exciting. And for each one of those, there is significant unmet medical need and potentially multibillion franchise opportunities, being in stock or orders. So we are very encouraged. Financially, we're strong, you know that. And we have opportunity to further invest and allocate capital back to the shareholders and to support the business and the portfolio. And as a company, we also expand geographically beyond the core mature markets in U.S., Europe and Japan. So I see an excitement in the foreseeable future and the significant value creation opportunity for shareholders on Biogen.

You mentioned aducanumab figures prominently in your future plans. Can you review what makes you optimistic that, that can be approved based on the ENGAGE and EMERGE studies? And in particular, I think investors are curious about your level of engagement with the FDA. Any information you can give us around your discussions.

Certainly. We are certainly encouraged by the sustained and constructive engagement with the U.S. regulator. We are making very good progress on a filing as soon as possible. The redosing study is ready to go. We have sites up and ready to get started on dosing patients. So there is really a good progress, I would say. We respect the regulatory process. So I cannot -- I will not go more into the details. We are very encouraged with the data. We have an EMERGE study that has delivered on prespecified primary and secondary endpoints on the full data set. So the study stands on itself. ENGAGE failed, but eventually with the high-dose, sustained-dosing patients, we can see some supportive data. But it failed. And we have the PRIME data, the Phase I/II. So we are encouraged by the data and, again, by the sustained and productive, constructive engagement with the regulators. So this is basically where we stand.

Do you have any assumptions around the length of the review? Do you think it will be priority or standard? And would you anticipate an advisory team?

So it's an exceptional process, so it's -- we will not speculate. What I will say at this stage is that the day we complete the filing, we will -- you can expect that we will issue a press release. We're on track, and we'll respect the process and what the FDA is doing. So we will keep you posted. It's not a week or 2 weeks that matters. What matters is the quality of the engagement, getting the product for the patients that are desperate. And we receive letters every day from clinicians and patients and caregivers that want the product back on the market. The redosing study is generating a lot of enthusiasm. This is what we -- the feedback we hear from the centers.

What do you think -- or how would you frame the key risks to the FDA approval process, given what you know about your interactions? Is it simply that ENGAGE failed? Or is it benefit/risk and how the FDA perceives ARIA? What would you say the key risks are to the review?

So we are building up the go-to-market model and -- in the U.S., and we do not speculate on what will be the FDA's decision. We respect that, again, for the third time. We step back. And we are optimistic. Since we are building the go-to-market in the U.S., that should be the first product where we have -- the first country where we have the product approved. And the progress is good. We are building the medical affairs team and the commercial team. We are making tremendous progress on access conditions. We are engaging and trying to foster partnering opportunities because it's not one company with one product that will solve a complex situation. So we try to engage on -- with key partners on questions: affordability, population health and the specificity of the Medicare Plan D. And I mean this is what we are doing so far. So, so far, so good.

How many people would you need to hire to successfully commercialize aducanumab? And when will those hires be made?

So we did not communicate on that. I will not give you the specificities at this stage. There is an investment case. There is a broader interest in terms of primary care and specialty care, but we'll start much more on a focused manner on the specialty setting. And we've worked since a couple of years on the patient journey in the different part of the countries. So again, there is a good level of readiness in terms of U.S. organization and go-to-market. This is in the base plan so that we could be ready potentially towards the end of the year.

How would you size the market? How many patients are out there? Who would be the most appropriate patients? And the big question we all ask is how would an Alzheimer's therapy be priced?

So listen, the epidemiology is well-characterized and been tremendous all around the world and also in the U.S. 50 million demented patients in the world, and a big chunk of those being Alzheimer's patients in the U.S. If you follow the entry criteria of our studies of prodromal and early/mild, it's more than 10 million patients. So the epidemiology is tremendous. And what we are looking at is really doing things always the right way, keeping the patient in mind and the population health in mind so that we can the day, potentially, we have the product on the market, we can reach the broader base of patients. The cost to society directly and indirectly is also extremely high, close to 0.5 trillion today. And if we take the example of HIV as a benchmark, for the first 10 years of treatment with anti-retroviral, it was close to a $1 trillion that was -- of value that was generated for the society. 95% went back to the society, 5% to the originator. So I mean there is an opportunity here to do well for the society, and this is what we are working on. The opportunity is huge. And we want to make sure that the product, if approved, is affordable for the patient. For that, we need to engage with key players out there.

Turning to SPINRAZA. What's your most recent thinking on its competitive position, particularly in light of the developments for Zolgensma and Risdiplam over the last few months?

As I was characterizing, the -- Biogen and the next 5 years, we are sitting on a strong foundation of key line products that is doing pretty well. And SPINRAZA, if you look at the latest data that we communicated, we have more than 10,000 patients. Patients value efficiency first, obviously. And here, SPINRAZA is very well-characterized in terms of efficacy and safety for all patient groups and all around the world. Since we achieved regulatory approval and reimbursement in a much larger geography than the U.S., SPINRAZA grew by 20%, if I'm not mistaken, in 2019, grew in the U.S. and ex U.S. -- faster ex U.S. We still have a long way to go in the U.S. And in every single market, the epidemiology is larger than what we anticipated. Competition in the U.S. is limited to infants so far. And for Risdiplam -- and again, we have close additional alternatives and modalities for the patient, but there's still tremendous questions, question marks, for Risdiplam in terms of efficacy at this dose and also tolerability. So we believe that SPINRAZA remain the foundation of care in SMA. We continue to implement and we continue to advance life cycle management opportunities beyond SPINRAZA.

And do you think the critical hold for Zolgensma in the older patients will prevent that from coming to market or delay that from coming to the market for the older patients...

I will not speculate on that. This is for Novartis to take a position, but we take good note about the -- basically the limitation of those type of modalities in terms of safeties and some concerns from regulators that were anticipated.

Maybe turning to multiple sclerosis. Revenue grew 2% last year. Cowen projects it's going to decline by 1% in total in 2020. So those estimates seem reasonable. How do you see the competitive landscape changing over the next couple of years?

Listen, 2% growth, 3% in patients. We stood up for hopefully resilience of $9 billion franchise, it's $9.2 billion. We are very proud. We are very excited about the life cycle management opportunities that we have with the current portfolio. The pipeline that we have with the repair for anti-LINGO that will be done this year, but also BIIB061 and a BTK also that is progressing well. We are launching VUMERITY. And it's still early to take a position, but so far, so good. Mostly switch and most of the switch are coming ex-TECFIDERA, which is good. So it's all about implementation. The Biogen team has demonstrated that we are able to launch products. We are able to compete, like in MS, and to retain market leadership. And we have market events with the current portfolio, like [ accelerating ] double dose or B-inteferon, the pregnancy label. So these are all good opportunity also to be on the offensive and, again, to protect the ambition that we have to be resilient. This is very important. And this was not in the bag a couple of years back, so pretty pleased to be in this position.

Congrats on the TECFIDERA IPR. Now that that's behind us, does Biogen's desire or ability to invest in the TECFIDERA franchise change?

So the fumarates remains front and center in our allocation of resources. TECFIDERA certainly has done extremely very well in 2019, U.S. and ex U.S. And now we have one opportunity to launch VUMERITY that is well documented, having a potentially a superior GI safety profile than TEC. And therefore, we launched VUMERITY in the U.S., and we continue to promote TECFIDERA as long as we can. It's a good news with the IPR, but we still have some [ COP ] cases. And I will not speculate on that. We remain -- we believe that our IP is there and can be defended.

Maybe turning to Bioepis and biosimilars. How large of a business could the biosimilar franchise be for you over the next few years?

I hope that beyond Biogen, the biosimilars opportunity for society is larger than what it is. Because if you want the market to be sustainable, we need to create -- to generate headroom for innovation for neurological products, but beyond, for oncology. Otherwise, the payer cannot pay for everybody, everything all the time. So we need biosimilars to generate this headroom. And for Biogen, we are pleased with the performance with our 3 anti-TNFs that could generate, we communicate that already, up to $1 billion. Within the European setting, we are also very pleased with the enlargement of the portfolio with the Eylea biosimilar and Lucentis biosimilars and in larger geographies, in the U.S., Japan, Australia and beyond. And we are looking to further expand our biosimilars portfolio. It's not certainly for the revenue and the income generation and the value it generates. It's also for the value proposition where we engage with payers. We are then in a position to generate savings while we come with our neuro innovation. And we are pleased to be in the -- in this position. So biosimilars plays very well in the strategy of the organization and on the purpose of the company to create savings for sustainability of this system. This is very important.

What are the biosimilars are you considering adding to your portfolio?

So we have a list. And remember that biomanufacturing at Biogen is really a differentiator. And so we are looking at an array of biosimilars for which we may have synergy with the in-line portfolio or future portfolio like eventually in ophthalmology, but we can go beyond.

And you mentioned payer engagement is useful. Can you discuss how that works? How do you -- how does a biosimilar help you with payers? And how does that fit synergistically with the rest of your portfolio?

So listen, I'll just give you an example. I was in a key mature market a few weeks ago, and we met the Minister of Health, starting to engage on Alzheimer's. And you can imagine the interest that this minister had. And we spoke also about the opportunity to launch biosimilars. And when we discuss about our footprint and the new opportunities in ophthalmology, this minister was absolutely delighted and thanked the company for what we are doing. So for all the GMs engaging with payers beyond the U.S., but all around the world, this will be one day an opportunity, beyond Europe and [ '20 CNS ], to really have a better value proposition when we come with our neuro innovation. This is important.

Moving to that innovation and the pipeline. In your opinion, which of your candidates are most misunderstood or unappreciated by investors?

So first of all, I would like to say that it's great to meet investors nowadays, let's say. So beyond aducanumab, can we discuss the rest of your portfolio? Because we want to learn more. So aducanumab really is front and center, and we continue to do well, and this is good. But beyond, there are 11 readouts. And being in lupus, that was a great news during Q4 2019; being ALS, where we communicated 18 months ago, approximately, the great data, the promising data on our ASO for SOD1 and the rest of the portfolio that we have beyond the SOD1, C9orf and the rest; being ophthalmology and significant opportunity that we have in the U.S., beyond the U.S.; being stroke, where there was no true innovation pharmacologically since tPA more than 20 years ago. This is a multi-billion opportunity; being Alzheimer's in the portfolio beyond aducanumab; and again, being the biosimilars. So this is -- these are very interesting times. In 2020, we expect data on natalizumab on epilepsy. We expect data on BIIB054 alpha-synuclein in Parkinson. We expect data on TMS-007 in stroke, the option that we have with the Japanese partner, so interest -- and obviously, opicinumab, the Phase II, the repeat Phase II for which this would be really transformational material for the patients. So it's good to see again the portfolio maturing and the stage where Biogen is standing on a strong core business with a significantly promising opportunity in AD. And the inflection point in terms of data opportunities with 11 readouts in the coming 18 months. And one word on Alzheimer's. If you step back and you look at what we have done in the past couple of years, 3 years, we renegotiated the deal with Eisai on aducanumab. We bought back the royalties from Neurimmune. And we have reinforced our portfolio, being with the symptomatic CK1 from Pfizer or being with BIIB092 on tau or being with BIIB080. So the -- and all the Sangamo deal lately, last week. So I mean we have been very consistent, and it's good to see that we start to see the light at the end of this long, challenging period where there was a lot of skepticism, high risk but huge opportunity and good to see progress.

So of the 11 readouts that you mentioned before the end of 2021, 3 of those are pivotal studies: this -- tofersen in SOD1-ALS, BIIB111 in choroideremia and BIIB093 in LHI. Which one of those -- or which ones of those would you focus investors on as being a likely driver of future growth?

Thanks for the question. But I will always place the patients first. And last week, we met the patient with choroideremia. And unbelievable how this patient will see suddenly the face out of the person he was talking to. But all the rest was blurred. He couldn't see anything. Young patients, the disease came up pretty fast, huge handicap. ALS, for the most severe form, could lead to death after a few months. This is terrible. And stroke, for which there was, as I said, almost no innovation pharmacologically since a couple of decades. Stroke represents certainly, from a shareholder's perspective and financial perspective, a huge opportunity. But again, from the patients, all the above are critical. This is where Biogen is while others are running away: meeting unmet medical need in that space where epidemiology is just tremendous.

Can you talk about Biogen's capital allocation strategy? How do you prioritize internal investment versus business development and M&A versus returning capital to shareholders?

Thanks for the question. We generated $7.1 billion cash flow last year. So again, the operation is generating the opportunity to allocate capital. This is a good place to be as a starting point. The balance sheet is pristine We have done 16 BD deals during the past 3 years. We have returned a lot of capital to the shareholders over the years. Last year, we bought back 24 million shares at an average price, if I'm not mistaken, of $246. So we believe this is creating value. And just imagine if we have aducanumab approved. So this capital allocation is front and center. It's a very dynamic process. We always place this shareholder value creation front and center in our decision-making process. And this long-term value generation is critical when we evaluate investment opportunities. Obviously, we're investing in the business, too, because we believe that also this will generate revenue. So we can do both, returning capital to shareholders and also enriching the portfolio in a very, very prudent and rigorous manner, the way we have done during the past years.

On your most recent earnings call, you defined some core growth areas as well as some emerging growth areas. You've pointed to a number of CNS deals, in particular, in your core growth areas that you've done the last few years. In the future, where would you invest your capital? Or do you feel like the core growth areas are fully built out, you need to focus on emerging? Or is it going to be a balance of the 2?

So listen, the dichotomy is not that clear. It all depends about the strategic alignments, the science, the financials, the IP, the synergies that we find commercially, the competitive position of each one of the opportunity, being in the core growth or being in the emerging. So I would say the line is much more blurred in terms of value creation opportunity. So I can really ask you just to be ready and open for a deal coming from left or right, depending on what I just said.

And as you mentioned, you did deal last week. You've been very active over the last 2 years. Should we expect more this year? Or do you feel like with aducanumab potentially coming late this year, that your plate's full, there's not much more capacity to take on new projects?

So we look all the time at allocating the capital that we have so that we can generate the value. Obviously, a launch of a -- a potential launch of aducanumab is something that attracts a lot of time and attention of management and me in the first place, but it's all ready for the U.S. for the time being. We have delayed a little bit the investment in Europe and in Japan because we are waiting for the regulators. But we started there with the medical affairs, with the payer engagement and patient engagement. So this is -- but it's mostly an investment in the U.S. for the time being so that we can be ready towards the end of the year. Obviously, BD should be -- we should be careful not to collide with this launch mostly if it is a ready to launch now. The organization cannot do 20 things at the same time. But at the same time, a larger footprint that an AD go-to-market will offer can bring the opportunity to add assets down the road to this larger footprint. So we're evaluating those, a good position to be, again.

You mentioned before that you have a lot of pipeline assets in neurodegenerative diseases. What has your aducanumab experience taught you in terms of developing those? What lessons have you learned? And how can you apply that to maybe guaranteeing more likelihood of success for those earlier stage programs?

So the team -- the beauty of the Biogen team is that -- and the company is that it's a specialized vertical. It's very difficult to do neuroscience as an aside and to be all over the place. The beauty of this company is that it's really full of neuroscientists, neuroclinicians, biomarker specialist, imaging specialists, genetician specialists in this neuroscience space that potentially can translate the specialization into a better probability of success. So this is strategically the best that we have done, that we have made that, so far, is playing out pretty well. And resilience is important and partnering and learning from the world in terms of success and failures has been critical. But the team is never giving up. The team is really absorbing, learning, being close to research and different hypothesis and betting on the longer term and also developing the later-stage pipeline. A remarkable journey. One day, there will be a book.

One thing that we've all been focusing over the last week is COVID-19 and the potential disruptions to supply chains. Can you remind us of your exposure to Asia? And maybe just generally what the redundancies in your supply chain should there be further disruptions in Asia or worldwide?

So we established -- we have established a subsidiary in China last year. The exposure so far is really negligible, I will say, unfortunately. But we time, this will increase for the company because I'm a strong supporter of China in terms of market and epidemiology, and it's a great place to be. But versus the current crisis, supply chain is good. So, so far, so good.

And anything in your opinion -- as we -- who are outside investors who don't have a lot of logistical experience, as we evaluate the situation, what would you point to, not just at Biogen, but broadly,as we evaluate the potential for disruption to the industry? How would you -- as an outsider, not an insider like you are, but an outsider go about answering that question?

So listen, China is the #2 market. And so it's very important to look at what's going on in China. And it's a very big market where there is no -- almost no primary care. So there is a huge dynamic taking place in the hospital. And once the region in Hubei is attracting in terms of this capacity of treating physician, we certainly have some rippling effect on the market. But you know what? I'm very bullish on China. Even if there is a bump for a few months, China will come stronger than ever with stimuli and other resilience that this country and its population have demonstrated over centuries. So there may be a bump of couple of months, but China will recover and recover stronger than ever.

We've answered a lot of my questions. It looks like we just have about 1 more minute left. Is there anything that I didn't ask you that I should have? Anything that you'd want to address now you have this opportunity?

Listen, I think, you asked very good questions. I would like to say, as a conclusion, that Biogen is relatively in a much stronger position than it was and competitively in a very good position by the fact that we are specialized in the space where others are running away from. Aducanumab is making some progress. The engagement is very constructive. The base business is strong. We have 11 readouts in the coming 18 months. The balance sheet is also pristine. It's a pretty good place to be as a company. Thank you for your attention.

Thank you. Thanks for your time.