Biogen Inc. (BIIB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Biogen Annual Shareholder Meeting. At this time, the meeting will begin, and it is my pleasure to turn the floor over to your host, Dr. Papadopoulos. Doctor, the floor is yours.

Good morning. I'm Stelios Papadopoulos, the Chairman of the Board of Biogen. And on my behalf and that of my colleagues as well, I'd like to welcome you to Biogen's 2020 Annual Meeting of Stockholders. I am here today with Susan Alexander, Executive Vice President, Chief Legal Officer and Corporate Secretary, who will act as Secretary of the meeting; and Michel Vounatsos, our Chief Executive Officer and a Director, who will make a company presentation following the conclusion of the formal portion of the meeting. I am also joined by each of the other members of our Board of Directors as well as members of the executive team of Biogen, including: Jeff Capello, Executive Vice President and Chief Financial Officer; Alphonse Galdes, Executive Vice President, Pharmaceutical Operations and Technology; Ginger Gregory, Executive Vice President, Chief Human Resources Officer; Chirfi Guindo, Executive Vice President, Global Product Strategy and Commercialization; and Alfred Sandrock, Executive Vice President, Research and Development. Mike Bernstein and Kevin Burney, representatives of PricewaterhouseCoopers, our independent auditor, are also participating in the meeting and will be available to answer any questions you may have for PwC. Before we begin the formal portion of the meeting, I would like to take this opportunity to thank Lynn Schenk for her many years of dedicated service as a member of the Biogen Board of Directors. Lynn has served the company with great distinction since she joined the Board of IDEC Pharmaceuticals in 1995. Lynn was selected to continue to serve as a Director of the company following IDEC's merger with Biogen in 2003. Throughout her tenure, Lynn, who was a National Association of Corporate Directors Top 100 Directors honoree in 2017, has been a vital contributor to the company and its Board. Lynn's experience in the public and private sector as well as her strong public policy, government and legal experience have been especially important to the company's success in the highly regulated life sciences industry. On behalf of the Board, I would like to express our deep gratitude to Lynn for her many contributions and years of exceptional service to the company and its stockholders. The formal portion of the meeting will consist of the matters submitted to a vote of stockholders as described in our proxy statement. During the formal portion of the meeting, validated stockholders as of April 6, 2020, the record date for the meeting, who have entered their control number included with their proxy materials, will have an opportunity to vote and ask questions. Following the formal portion of the meeting, our CEO, Michel Vounatsos, will make a business presentation, and we will provide additional time for general questions. The agenda and rules of conduct for the meeting are posted on the virtual meeting site. Turning now to the formal business of today's meeting, I can confirm the following preliminary matters. The company has appointed Joseph MacLelland of CT Hagberg LLC to act as inspector of elections for all matters requiring a stockholder vote at this meeting. Mr. MacLelland is in attendance and has a certified list of stockholders who are entitled to vote at this meeting as of April 6, 2020, the meeting record date. The holders of proxies solicited by the Board of Directors for this meeting are Michel Vounatsos, Jeff Capello and Susan Alexander. A majority of the shares of common stock entitled to vote at this meeting are present or represented by proxy and, therefore, a quorum is present for purpose of conducting the [ business of the meeting ]. Now we will turn to the meeting proposals. It is exactly 9:05 a.m. on June 3, 2020, and I hereby declare the polls open for voting on all matters of business. If there are any stockholders who have previously submitted a proxy and wish to revoke their proxy or change their vote, or if there are any stockholders who have not yet submitted a proxy and wish to vote, you may submit your vote by clicking the voting link on the virtual meeting site. Stockholders may vote until the polls are closed following the presentation of the proposals. If you have already submitted a proxy and do not wish to change your previously submitted vote, there's no need to vote during the meeting. Additionally, stockholders who have a question about any meeting proposal may submit a question now by clicking the link to ask your question on the virtual meeting site. We will take any questions once all the proposals have been read. Stockholders, if you have a question that is unrelated to the meeting proposals, we ask that you wait until the business discussion period to ask that question. Number 1, election of directors. The first proposal is the election of directors. There are 12 director nominees standing for election to serve a 1-year term, namely: Alexander Denner, Caroline Dorsa, William Hawkins, Nancy Leaming, Jesus Mantas, Richard Mulligan, Robert Pangia, Stelios Papadopoulos, Brian Posner, Eric Rowinsky, Stephen Sherwin and Michel Vounatsos. Number 2, ratification of PwC. The second proposal is the ratification of the Audit Committee's selection of PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending December 31, 2020. And 3, say-on-pay. The third proposal is an advisory vote on executive compensation. The Board recommendations are as follows: our Board recommends a vote for the election of each director nominee, for the ratification of PwC as the company's registered public accounting firm and for the advisory vote on executive compensation. There are no other formal matters that have been appropriately brought before this meeting for a vote of stockholders. We will now take questions from stockholders related to the annual meeting matters. Are there any questions from stockholders related to matters properly brought before the meeting?

Mr. Chairman, there are no questions from stockholders relating to the matters brought before the meeting.

Excellent. We will pause for a brief moment for those of you voting online to finish voting. And I presume now that everyone has had the opportunity to ask questions and vote on the meeting proposals, I hereby declare the polls of the meeting closed at 9:08 a.m. I would like to remind everyone that most of the votes on the matters to be acted upon at this meeting have been cast by proxy, which will be tabulated by the inspector of elections. A preliminary tabulation of the votes indicates that our 12 director nominees have been elected to the Board of Directors to serve a 1-year term, PricewaterhouseCoopers has been ratified as our independent registered public accounting firm, our stockholders have approved the advisory vote on our executive compensation. We will file the final voting results with the Securities and Exchange Commission on Form 8-K within 4 business days. This concludes the formal business of today's meeting and the formal portion of the meeting is now adjourned. I will now turn to our Chief Executive Officer, Michel Vounatsos, to make a brief presentation about the company, after which we will respond to any stockholder questions and comments. Validated stockholders may enter questions and comments by clicking the link on the virtual meeting site any time during and after the presentation. Michel?

Thank you, Stelios. First, I would like to thank you all for investing in and supporting Biogen, especially during the current pandemic that is challenging us all. We believe Biogen is in a strong position, and we operate our business with a focus on continuing to meet the needs of patients across the world. Before I begin, I would like to point out that we'll be making forward-looking statements, which are based on our current expectations and belief. These statements are subject to certain risks and uncertainties. I encourage you to consult the risk factors during -- discussed in our SEC filings for additional details. Also, please note that the reconciliation of our GAAP to non-GAAP financial measures is provided at the end of this presentation, which is available on the Investors section of biogen.com. As leaders in neuroscience, our core goal is to develop transformational therapies for neurological diseases. We believe the time is now for neuroscience. Neurological disease is the leading cause of disability and #2 cause of death worldwide, second only to cardiovascular diseases. These diseases are largely untreated today. The prevalence is often massive and growing. We are building on a $9 billion core business in MS and $2 billion business in SMA. And we have significant near-term value creation opportunities in areas with high unmet need: 50 million patients today suffer from dementia, over half of which likely have Alzheimer's disease; ALS is a devastating disease with an average life expectancy of less than 5 years; stroke is the fifth leading cause of death in the U.S.; up to 200,000 patients suffer from inherited retinal disorder in the U.S., and this is just to name a few. We believe the time is now and that we are well positioned to lead. Biogen has a track record of strong financial performance driven by innovative product launches and continued solid performance of the overall portfolio. Over the past 10 years, revenues have grown with a compounded annual growth rate of 13%. These results were driven by solid execution of our strategy through maximizing the resilience in MS, our successful global launch of SPINRAZA, our launch and expansion of our anti-TNF biosimilars in Europe, creating a leaner and simpler operating model and prioritizing our capital allocation efforts with the goal of maximizing shareholder returns. As you can see, with the majority of our revenue still comes from our MS franchise. Over the last 10 years, we have been able to grow revenues while also meaningfully diversify the portfolio with the introduction of SPINRAZA and biosimilars. Our revenue growth, combined with financial discipline, has helped drive strong compounded GAAP EPS growth of 26% and non-GAAP EPS growth of 23% over the past 10 years. Biogen has the financial flexibility to allocate capital for potential shareholder value creation. In 2019, we generated approximately $7 billion in cash flow from operation. Our first priority is to invest in our core business and pipeline. And even after this, we expect to have significant capital available to deploy. We expect to focus capital allocation on business development as well as continued opportunistic share repurchases. Let me highlight the success in our $9 billion MS franchise. Driven by strong commercial execution, we have retained global market leadership in MS with approximately 34% market share. We are continuing to pursue innovation in this market, including VUMERITY as a novel option in the large oral segment now launched in the U.S. We continue to invest in life cycle management and R&D for MS, including extended interval dosing for TYSABRI, investigational therapies for remyelination and a potential oral BTK inhibitor. We have demonstrated our ability to compete. Even with a significant increase in the number of available therapies, we were still able to grow our global patient base. Biogen has demonstrated our ability to launch well through the introduction of SPINRAZA. SPINRAZA has generated $2 billion of revenue over the last 12 months, and we now have over 10,000 patients on therapy. SMA is a devastating rare genetic disease that causes degeneration of lower motor neuron and wasting of the skeletal muscles. In its most severe form, it is fatal. We have a broad label on proven efficacy across all patient types and a well-characterized safety profile. We have and continue to build the largest and longest body of clinical data for any therapy in SMA across clinical trials and real-world evidence. And we are continuing to invest in SMA by pursuing: investigating a higher dose for even greater efficacy; advancing a potentially complementary muscle enhancement program, BIIB110; working with Ionis to identify new potential antisense oligonucleotide drug candidate for SMA; and a preclinical oral splicing modulator as part of our collaboration with Skyhawk. We also have a growing biosimilar business, which has generated over $700 million in annual revenues, with over 200,000 patients on our product in Europe. In Europe, our 3 anti-TNF biosimilars have contributed health care savings of approximately EUR 1.8 billion in 2019. We have entered into a commercial agreement with Samsung Bioepis to expand our portfolio. We have gained commercialization rights to 2 potential ophthalmology biosimilar across major markets globally with a significant market opportunity. We believe our biosimilars are strategically important as we work with payers and health systems globally to help create budget headroom to fund innovation. Let me now discuss how we are working to create new sources of value to help drive long-term growth. We have made significant progress developing and expanding our pipeline by adding 15 new clinical programs since the beginning of 2017 through both internal R&D and business development. Today, we have a broad pipeline with 27 clinical programs, including 6 in Phase III, 11 in Phase II and 10 in Phase I. 2019 was an historic year for R&D organization with the positive data we announced for aducanumab, our investigational therapy for Alzheimer's disease. As you may know, there are no available treatments to slow the progression of this disease. If approved, aducanumab will be the first. We are actively engaging with regulators, and we expect to complete a regulatory filing in the U.S. in the third quarter of this year. The goal of this strategy is to build a multi-franchise portfolio, building on the solid foundation we have in MS, SMA and biosimilars. We see a significant opportunity for shareholder value creation, driven by the potential maturation of franchises in areas such as ALS, Alzheimer's disease, stroke, lupus and ophthalmology, which have tremendous unmet need with limited to no treatment options today. I'd like to conclude by discussing our broader purpose as an organization as we aim to do the right thing for patients, our employees, the environment and the community, all of which we believe contributes to long-term sustainable shareholder value. From our work on biosimilars to employee culture, on environmental conservation and community outreach, I am proud of what Biogen stands for. I believe this approach positions us well to be a sustainable organization over the long term. Before I conclude, I would also like to thank Lynn Schenk for her service on our Board. She joined the Board of IDEC in 1995 and continued on Biogen's Board since the merger in 2003. Lynn has been part of the remarkable evolution of Biogen from one of the world's first biotech company to a neuroscience pioneer that today discovers, develops and delivers worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases. Lynn has brought a wealth of experience and has been a vital contributor to the company and its Board. So thank you, Lynn. I'll now hand it over to Dr. Papadopoulos for any question you may have.

Thank you, Michel. At this point, we will entertain questions or comments from our stockholders. So I will turn to Ms. Alexander to inquire whether there are any questions from online stockholders.

Mr. Chairman, a stockholder has asked the following question. Mr. Chairman, the carpenter union pension funds with combined assets of $70 billion have a collective ownership position of 152,070 shares of company common stock. As long-term shareholders, we appreciate the efforts of the company to address the difficulties faced by employees and other important stakeholders during the COVID-19 pandemic. Under existing share repurchase authorizations, the company has repurchased 11.3 million shares for $3.5 billion this calendar year. Could you describe the factors senior management examines, including alternative uses of the cash used, when deciding to repurchase shares? And in these uncertain markets, has the Board or management considered suspending share repurchases?

Thank you. Capital allocation is the broader issue at hand here, and this is a main responsibility and duty of the Board. We regularly evaluate different opportunities, such as investing in R&D, making acquisitions, potentially issuing a dividend at some point or stock repurchases. So this is something which is an ongoing evaluation and consideration. And as to the specifics or the question regarding the stock buyback, I'd like to turn to our Chief Financial Officer, Jeff Capello, to give some more details as to our thinking along the way. Thank you. Jeff?

Thank you, Mr. Chairman. So as the Chairman articulated, we have a very balanced view on capital allocation for long-term shareholder value creation. From an operating perspective, we invest to grow the business and drive shareholder value. I'd like to point out in the last 12 months, we invested $2.3 billion in SG&A to grow our revenues and $2.3 billion in R&D. So $4.6 billion in total. In addition, we are a company that generates strong cash flow. We generated $7 billion of cash flow in the last 12 months. We look at all opportunities to drive that long-term shareholder value creation, which includes business development and returning capital to shareholders. Over the past 3 years, we've completed 17 business development transactions for over $3.5 billion, which has allowed us to grow our pipeline. In addition, we've repurchased shares as well. So we take a balanced view of capital allocation for long-term shareholder value creation, and we have ample capacity to invest in the business and do so in a very thoughtful way.

Yes. Ms. Alexander, any other questions from stockholders?

Mr. Chairman, we have an additional question from the same stockholder. Their question is, Mr. Chairman, the recent growth in the size of passive mutual funds' corporate ownership interest in U.S. corporations has been dramatic, raising important public policy and corporate governance issues. Currently, BlackRock owns 8.7% and Vanguard owns 7.6% of the company's outstanding shares. Vanguard manages assets in the company's retirement plan. Does the Board see this growing ownership concentration of passive index funds holders as a positive or negative development as regards to long-term corporate planning and performance? And also, are there potential conflicts of interest when a 5% holder is managing company retirement plan assets? Thank you, Mr. Chairman.

Thank you. Thank you for the question. As has been pointed out, and I will expand a bit further on this, the emergence of passive investing is a major trend in the last decade or so. And in fact, it's been a very good thing in a sense that individual shareholders can now invest extremely inexpensively into a variety of stocks in the marketplace. So that has given the individual investor additional ammunition on how to invest properly and inexpensively. At the same time, as has been pointed out, between BlackRock, Vanguard as well as State Street, roughly 15% to 25% of most -- of all major U.S. corporations are now owned by those 3 entities. So is that a good thing or a bad thing? I think time will tell. It's not -- it's an -- it's already, as I pointed out, enhanced the small investor's opportunity to invest. But at the same time, these funds now introduce a variety of considerations as to -- with regards to social issues and social responsibility, and environmental issues and other considerations. Now prior to those funds, the issue of social responsibility of a corporation was left to its individual corporation. Corporations, remember, are there to enhance long-term shareholder value. But at the same time, they're a part of society and they do have a social responsibility. I think BlackRock, State Street and Vanguard have introduced that aspect of the discussion to the public forum and have made it something that we all need to consider. I personally welcome this. I welcome their input and would certainly take very seriously all that they suggest. And we have, at different times, managed our corporation more along the lines of some of those suggestions than anybody had ever done before because that's the right thing to do. Lastly, on the issue of conflict of interest, I can assure you, all of our funds are being managed professionally. They are done -- the decisions are made with the, first and foremost, consideration of fiduciary responsibility to our stockholders. So I'm not personally concerned that we have any issues whatsoever in that regard. Any other question, Ms. Alexander?

Mr. Chairman, a shareholder has asked, can you elaborate more on the status of the aducanumab research for Alzheimer's disease? And another shareholder has also asked, when do you anticipate launch of the Alzheimer's [ modi ]? If FDA approval, when can desperate patients anticipate using this drug?

I will turn in a moment to Michel Vounatsos and Al Sandrock to answer those questions. But just one thing to make absolutely certain, we cannot estimate or cannot handicap or speculate on any aspect of FDA approval. All we have suggested so far is that we're doing our work to submit the application by the end of the third quarter of this year. Beyond that, it's up to the FDA and we cannot add any comments to that. But I'll turn to Michel and Jeff -- and Al, I'm sorry, to talk some more about the aducanumab Alzheimer's program.

So I will get started. Thank you, Mr. Chairman. We communicated clearly that we anticipate to complete the filings for aducanumab in the U.S. during Q3 this year. But although we haven't completed the file yet, we have now started the filing in the U.S. because we have an open BLA and we have started to submit modules of the filing. This has been, so far, a very collaborative process with the regulator, and we have meetings together with them that reflects the high level of engagement. COVID-19 has been impacting Biogen and also society, and this has increased some of the logistics complexity and, therefore, a little bit of the timing. So why -- this is why we have communicated on Q3. But nothing so far has come up that changes our interpretation of the data. I will refer now to Al Sandrock on the other part of the question.

Hi. Can you hear me? I hope you can hear me.

Yes.

I just wanted to -- I have very little to add to what Dr. Papadopoulos and Dr. Vounatsos has already said, except to -- I just wanted to emphasize and agree with the shareholder that this is of the highest urgency. This is a terrible disease, and we're doing everything we can to be sure that we give this drug the very best possibility for approval. And after that, to make it available to patients as rapidly as possible. So thank you for the question.

Ms. Alexander, any other questions?

Mr. Chairman, a shareholder has asked, which doses and study has been most successful?

Well, I think maybe Dr. Sandrock could address this to the extent we've published and presented data to scientific meetings.

Yes. And I'm assuming this refers to aducanumab. So there have been 2 large Phase III trials, they're called EMERGE and ENGAGE. The EMERGE trial is positive on the primary end point and all secondary end points. To my knowledge, this is the first time a disease-modifying therapy for Alzheimer's disease has been positive on the primary and all secondary end points. The other trial, ENGAGE, however, was not positive. And so -- and we have worked very hard to try to understand why ENGAGE is not positive in the face of a positive EMERGE study. We think we have some answers. We think it's related to dose and exposure to the high dose, in particular, and we have presented those findings at the scientific meetings thus far. And so that's the summary of the Phase III trials.

Well, Ms. Alexander?

Mr. Chairman, there are no further questions from shareholders.

Well, since it appears now that there are no further questions or comments from any of our stockholders, I would like to conclude the annual meeting of our stockholders. Thank you for your participation and your continuing support of Biogen. Thank you all.

Thank you, ladies and gentlemen. This does conclude today's shareholder meeting. Thank you for your participation and have a wonderful day.