Biogen Inc. (BIIB) Earnings Call Transcript & Summary

Welcome to the TD Cowen 43rd Annual Healthcare Conference. I'm Phil Nadeau, one of the biotech analyst here at Cowen. It's my pleasure to moderate a fireside chat with Biogen. We're really happy to have with us today, Chris Viehbacher, the new CEO. Chris, congratulations on assuming the role of CEO as BioCentury said this weekend, you have a tiger by the tail.

Maybe we'll start just with a general question. What's your view of the state of Biogen now? And what do you think Biogen needs to do over the next 5 years to create shareholder value?

Well, thanks, Phil. It's good to be with you this morning. Biogen is in kind of two situations. On the one hand, we have the Biogen that has been successful over 45 years in multiple sclerosis. And now we're shifting it. We're in Boston. So I think it's legitimate to quote our local newspaper. Boston Globe had not so long ago an article about the top and most interesting launches for 2023. And Biogen was the only company up there with 2 of those. And we've got 2 priority reviews now following Friday's announcement. So that's a unique opportunity, I have to say, even in my 35 years, getting 2 significant launches is unique. Now we have to do a lot to prepare for those launches. First, Biogen has been very, very focused on MS. With zuranolone, for example, we're going into a much broader patient population as well as physician population that we're used to deal with. We'll probably be looking at direct-to-consumer advertising, which we haven't really done before. And obviously, on LEQEMBI, this is a whole new therapeutic category that is about to open up after decades of trying to figure out something that will actually have a beneficial impact on cognition. And there's a whole plethora of issues that we're going to have to deal with on that. We do have $5 billion of profit less this year than we did in 2019. And we haven't necessarily adapted our cost base for that. So there's a piece of this, which is aligning our cost base with best practice in the industry, but there's also a piece of how do we shift resources to support these new launches. So a lot's going on.

We will dive into the launches in a bit more detail, but maybe staying at the corporate level. You mentioned -- you just mentioned the possibility for cost cutting. Biogen has already announced one initiative. It sounds like there could perhaps be another one at some point. How do you -- this is a question we get from investors all the time. Where could the cost come from? How would you align the current -- how would you align your expenses better with where you think Biogen is going to be over the next few years?

Well, the first thing we've started doing is we started benchmarking our pharma business by taking out the CD20 revenues. Now a lot of companies do have tail product revenue, which is also passive income. But I have to say the CD20 revenue has been an enormous contributor to profits at Biogen, but it doesn't require any effort on the part of Biogen to support. So -- and when you include those numbers, then some of the OpEx to sales ratios look a little more flattering. So we start to look at, okay, what's the right spend on both SG&A as well as R&D. We spend well above our peers on those. The interesting thing is there's a lot of good things going on. So our first step is what's the right amount of money to be spending on R&D. And that means we have to go through really the pipeline with a lot more rigor. We appointed Dr. Priya Singhal, as our Head of Development. Priya is not only an enormously smart and well-experienced person, but she's got a nice objectivity. She doesn't mind evaluating our own children in a very objective way. And that's huge. Biogen has a business model that is focused on the brain, if I can put it that way. And a lot of neurological conditions, they progress slowly. So -- and you really can't do a Phase II. So we have an awful lot of very long and very expensive studies. And so as we think about the R&D spend, we have to think also about what is our portfolio going to look like? I very much subscribed to the mission of Biogen, which is to go after really difficult disease states that others really don't. But we can't have our whole portfolio look like that. So there is a first step to really saying, what is our R&D pipeline really going to look like? And then we need to engineer the cost structure to support that. And that might be smaller, that might be the same. We haven't really decided on that. And then we're spending hundreds of millions of dollars on prelaunching the LEQEMBI and zuranolone. And so whatever we do, we don't want to create any distraction from that. So -- and then you look at the rest, because Biogen has had a relatively low volume, high-value product portfolio, it's got a lot of centralized structures. And so as we look at cost savings, we have to really look at does it make sense to keep those centralized structures? Do we need to decentralize a little bit? How do we improve accountability for those costs? So there has been a first cost reduction wave, which I would argue is the low-hanging fruit. Now we're actually redesigning the organization for where it needs to be. But we are looking at OpEx to sales ratios of our competitors and aspirationally targeting those for our company.

You touched on the idea of an R&D portfolio structure. In your mind, what would be the ideal R&D portfolio structure in terms of spectrum of risk, spectrum of maturity, overall R&D as a percent of revenue?

Well, I mean, right now, we're probably at over 30%. Our peers are probably at 20%. I'm not really saying we necessarily have to be there. What I would say is, let's make sure that we're spending money on products that we have a higher degree of confidence will actually reach the market. There's no question that if Biogen hadn't really done that Phase I study somewhere around 2012 at a time when 15 or 20 other molecules had all failed, we -- those molecules have reduced plaque, but had not demonstrated any cognition. That Phase I study demonstrated that there was still hope. And most people -- and I can tell you, I was at Sanofi at the time, and I said, well, looking at all of that there's just no way we can really continue think about investing in Alzheimer's when we don't really understand the underlying disease biology. Biogen believed in that. And Biogen and Eisai have spent literally billions on the clinical development of that. So if companies like Biogen don't do that and don't do that for Parkinson's, we're never going to find a cure. But we also are a business. And so we need to have some things that -- where we can actually do a Phase II and get a better sense of safety and efficacy and then go into a Phase III that doesn't take forever and doesn't cost an awful lot. So trying to balance, making sure we're still going after some of those hard things. But immunology, I think, is an area of rare diseases and neuropsychiatry, which we're now in through zuranolone. So it's a question of balance. I have to say I'm treading somewhat carefully because I think there are an awful lot of fundamental strengths in there. And so you can break things. And so how do we adapt the culture and how do we adapt the organization. But we're certainly recognizing that we can't keep having a decline in revenue stream, and we can't have an inflated cost base.

I think one of the most notable quotes from the recent earnings call was when you said, I don't know why they would have hired me if they don't want to do deals. So I think people are expecting business development to be a part of Biogen's future. In the past, Biogen's maybe being criticized for not pulling in triggering deals or perhaps not evaluating what we externally thought they should do correctly, which we could be wrong. But how do you think business development should go in the future? How will Biogen and Board decide which deals to do and which don't make sense?

It's always amazing to quote to get picked up. And the reason I said that was there is this perception that Biogen doesn't do deals. And to me, a lot of investors don't want to say that's taken off the table. So it's not meant to be a signal we're going to go do deals. But I would say that our Board is certainly open if there is a good proposition now. We all know that a lot of M&A does not deliver value. And so it's not easy to do good deals. And where I sit, we're not necessarily in a hurry to do anything because we have these 2 terrific product launches. So to me, the 2 areas I would be looking at is, for instance, can we build out more of a rare disease franchise with some tuck-in type acquisitions? Or is there something that comes along that really generates a return on investment that would help derisk some of the growth profile because while I believe LEQEMBI and zuranolone are going to be major contributors to revenue growth, the actual offtake is not going to be so easy. And we may want to have something that derisks it. Now, way back when I was at Sanofi and we were doing Genzyme, we could have made the deal go a lot faster if I had just paid $80 a share. But to me, I knew our investors saw that there was value creation if we could buy this for $75 or less. And that's why it became a hostile deal, and we acquired it for $74 and it created an awful lot of value for Sanofi. So I'm very much conscious that if we're going to do a deal, it can't just be a strategic type thing. It's got to financially make an awful lot of sense. So there's no particular plan for an acquisition. But I did also want to signal that we're not taking it off the table just because of Biogen.

One of the more interesting aspects of the BioCentury article in interview with you this over the weekend was the idea that you broke, I think it was Sanofi of the NPV method. Can you talk a bit about that? And is that something that Biogen does now? Is that something that you're going to try to also break Biogen?

Well, a net present value and then you take an expected net present value calculations in the hands of a scientist is actually a dangerous thing in my view. There's -- the number of times I have sat in corporate meetings where someone puts up a number and says, well, the number is $482.5. And therefore, we're not going to do the deal. And if you think about an expected net present value calculation of a product that is in Phase I. I mean think about the error bars just around the sales forecast, right? And then the infamous probability of success. And then you're going to get into, well, how much are we going to spend? And then we got to think about where is the market going to be in 10 years when this product comes to market, it would be foolish in my view, to do that. And when you actually discount this thing back and you look at it, nothing is worth doing in some ways. So to me, what I have found over the years is, having been involved in a lot of product launches, if I can see a really clear unmet need, and I can have someone explain in very clear terms why this drug could really help that unmet need better than anything else that's out there in the market or anything else that is already in development, I can sell that drug. And then let's develop that further. So I never believed in -- a lot of people like an expected net present value because they're not comfortable with judgment. And if you can quantify it, then you can be less criticized. But our business is around managing risk. We have to figure out which risk we're going to take, and we have to be explicit about that and how we're going to mitigate those risks. And you can't really hide behind an expected net present value. That's why I don't really like them. Now obviously, you've got late-stage assets, if we're going to do -- if we have to do an acquisition, then we're going to be pretty robust on the financial analysis. But at an early stage, I don't think it's the right way to do it. I think you have to have that belief in your -- what you're trying to address with your product.

Turning to the product launches. LEQEMBI is obviously a big one. Can you discuss Biogen and Eisai strategy for the initial launch once reimbursement is secured? And in particular, what's -- what are Biogen and Eisai are going to do to limit the bottlenecks -- eliminate the bottlenecks like infusion seats and diagnosis in order to get patients on therapy?

Well, I mean this is a really interesting launch. I mean first, you take the neurology community. It obviously varies by physician. But quite a few neurologists will tell you that, really, they typically don't have more than about 10% of their patient population today as Alzheimer's patients because quite frankly, there hasn't been that much to be able to do for them. They're not necessarily well reimbursed for that and these are very complex patients. So the neurologist is already busy. So we're going to have more Alzheimer's patients coming in. And the diagnosis is not simple. So we either need to have a PET scan or you need to have a lumbar puncture. And a PET scan costs about $7,000. Lumbar puncture is not necessarily an easy thing to organize, and there's a capacity constraint around that. Probably in Europe, almost everything will be lumbar puncture because of the lack of availability of PET scans. Then in the first 14 weeks, you probably need 3 MRIs according to the label. So -- and then you have biweekly infusions. So one of the things that we have is a drug that walks and talks like a specialty drug, but we've got primary care-like volumes. So the first thing we're really going to have to do is help think about how does the capacity expand. And we all know that, that doesn't help overnight. There's a number of things that we can do. One is blood diagnostics could be a real game changer there. And they have been around for some time, but nobody really wants to develop a blood diagnostic commercially if there is no treatment. There's just no market. Now we have a treatment, everybody is racing to bring those blood diagnostics. And the blood diagnostics will be really important, not only because you could save the system money. So if we can get a blood diagnostic that has been validated against PET scans, maybe we don't need the PET scans, maybe we don't need the lumbar puncture. But the other is, today, we talk about early-stage Alzheimer's patients as being mild cognitive impairment, the MCI, but now as a lot of neurologists have said, well, actually, they're not that early stage at all. And in fact, it turns out that the plaque levels are probably at their peak just before you have symptoms. Now up to now, it's been very difficult to do any studies. We have a study called AHEAD going on in preclinical patients, but blood diagnostics would really help. And when you think about it, if you could actually find people earlier before a lot of neuronal damage has occurred, you could have an even bigger benefit. So -- but that would -- short term, we'll have to wait till that and AHEAD study clearly come in. But short term, that could really ease some of that capacity. It would also mean that you could potentially have other physician types who could be involved and not just a neurologist who's busy. And then there'll be a maintenance therapy probably as well. So there will be a growth in capacity, but I think we have to be realistic that that's not going to happen overnight. We are -- there's a lot of site activations, the companies identify where our site's willing to take on these patients and have the capacity. And I think as physicians get experience with the drug, then they'll also have the confidence to go and invest in the capacity to actually treat them. So it's going to probably be a more constrained patient population. And one of the most important things for us is that we are educating the physician populations around all the safety aspects, but also who is really the right patient. The -- everybody talks about huge numbers of patients, but at least at the beginning, we really need to find the exact right patient and those will be smaller numbers.

In terms of reimbursement, TD Cowens, Washington Research Group expects, after full approval, reimbursement will convert to coverage with evidence development with the register requirement. Is that also Biogen's expectation? And if so, what elements of a registry would basically allow broad access versus are there certain registries that could be designed that would still be constraining?

Yes, it's interesting. And under the terms of the contract Eisai has the primary responsibility for discussions with CMS. So we're not in those discussions. What I would say is one of the things that I saw in Washington last week -- I started my career when the biggest health concern was HIV. And 1992, the FDA actually introduced the whole Accelerated Approval Regulations, which then got codified in 2012 with FDASIA. And so -- and it's for clear unmet need, an urgent unmet need. So it's kind of strange that we have a different branch of government that is now looking at saying, well, we actually want a registry. And it's not really clear to me why you need a registry to begin with because we have clarity, which is the gold standard of clinical evidence. But that will be a subject of negotiation. You could argue that the data have been published and are available. It is our belief though that CMS will wait to make a decision until there is a full traditional approval. Now the registration will be a question not only of how much effort is it to get into the registry. And I think we have to be very careful because there are an awful lot of disadvantaged populations who suffer from Alzheimer's. So I think care needs to be taken that those disadvantaged populations aren't excluded. But there's also going to be, well, how many patients are going to be in the registry because in some ways, the registry can -- has been used in other areas as almost a cap on how many people can be treated. So we don't know yet, but it certainly is something to watch for. The real difference that we have today is that clarity is very clear evidence that actually the removal of plaque below a certain level has had a beneficial impact on cognition. And that's huge. That's the first time since Alois Alzheimer discovered these plaques over 100 years ago.

What is Biogen's outlook for the LEQEMBI long-term sales potential? Cowen predicts about $2.5 billion in sales in 2027. Is that aggressive? Is that conservative? Obviously, this is a huge patient population. Key question we're all trying to answer is what will be the ultimate penetration?

I can certainly feel comfortable that towards the end of this decade, this is quite a significant product. It's kind of one of the first times in my career where I figured -- I have more confidence in the long-term number than the short term.

And in terms of the next steps for LEQEMBI, it sounds like Eisai is going to file for approval of both the subcutaneous formulation as well as maintenance dosing in the first quarter of next year. How important are the successes of those 2 improvements to the long-term potential?

Well, we'll get the first signal with the EMBARK data from Biogen on ADUHELM because there is some anecdotal evidence that actually staying on the product can help stabilize the cognitive status of a patient. So we need to get more evidence of that, but there is an emerging belief that you will have a plaque removal process, which is really what CLARITY study. So we have an 18-month period. We reduced the plaques to a certain level. We saw a benefit. So what happens though, if you were to stop, but it looks like plaque will return. And so staying on the product could have a benefit, which would be incremental revenue and -- but probably at a different dosing regimen because once you eliminated the plaques. So -- and obviously, in a longer-term treatment scenario, a subQ would be an awful lot more convenient for patients because right now, we're biweekly, you don't know what it would be on a maintenance basis, but it's one thing to do the infusions over an 18-month period during your plaque removal part. But on the maintenance, the subQ could be quite important for that market.

Maybe turning to zuranolone, the PDUFA dates coming in August. What's Biogen's strategy for launching zuranolone into PPD and MDD?

So I was at GSK when we had Paxil and Wellbutrin and certainly saw the enormous need for mental health patients to have new options. The current therapies help a lot of people today, but they take 6 weeks to work. You have to stay on the treatment. And a lot of them have a number of side effects. Some of them, it's weight gain, some of them, it's sexual dysfunction, some of it's fatigue. And so I think to me, zuranolone looks like a terrific product. Here's a product that can work within potentially 3 days is what we've seen in the data so far. And you only stay on the drug for 2 weeks. And one of the things when you do market research over the years about what affects compliance, everybody thinks is there's copays, there's side effects. What is it? Well one of -- the #1 factor, in fact, is every time I take a pill, I'm reminded I'm sick. Now if you have a mental health patient and you're dealing with all the stigma and you're taking a pill and somebody says, "Well, what are you taking that for? I mean what -- not everybody wants to say what it is. Here, you can take it and you feel much better, and you're liberated from the pill box. And so I think that will be an interesting phenomenon. We have a study called SHORELINE that say, okay, well, how long does that last? But it looks like quite a high percentage of the onetime is enough. For a smaller percentage, maybe it's twice. Now it is a much different marketing philosophy. I mean, the only analog I could find was Zithromax because that was also a 10-day treatment and you had the Z-Pak. Unfortunately, they already have the Z-Pak trademark otherwise, we might have swiped that to [ zuranolone ]. But it will be different. And that comes up in contracting with payers, for example. And even as we look at scripts, I mean, the traditional NRx/TRx are not going to work in the same way. So it's a different philosophy not to treat chronically. And so from a physician point of view, this will be a new thing. I think from a patient point of view, this is going to be a terrific thing though. I'm quite excited about zuranolone.

How do you think about pricing short-term therapy like this? Is -- do you think of it trying to get the -- or price for the benefit of the average duration of response? Or do you compete to the therapies that are out there? Generally, how do you go about pricing a change in paradigm like this?

You do have to look at this as probably on an annual basis and try to price it on that basis. There will be a question of, are you looking at 1 treatment or 2? Or is this 1.2 treatments? And that's where SHORELINE will be important in assessing that.

And are there specific patients that -- or physicians that Biogen will target with the initial marketing message? Anyone in particular that you think would be particularly amenable to therapy?

Well, you're certainly going to look at patients who are clearly not doing well on existing therapy. I mean most patients churn through a lot of different therapies. Some of them on SSRIs have more of an anxious profile. We won't have anxiety as an indication. But I think it's largely going to be those who are really not responding to current therapy at the moment.

Turning to other aspects of the business. There are also interesting comments about the biosimilars business, both on the Q4 call as well as the article over the weekend. What are your thoughts on the strategic rationale for maintaining a biosimilars business at Biogen?

I mean biosimilars are going to be important. If you think, particularly the U.S. market has always been maximally efficient. You finish your period of exclusivity, the generic industry was supremely efficient. I remember when we lost the Plavix patent, within 6 weeks, we lost 90% of the business. And so that drives the company to be constantly innovative. You innovate or die in that structure. Biologics, we haven't clearly seen that. And to a degree, I think one of the reasons we have the IRA is that we were actually having an accumulation of cost because new biologics come onto the market, but the older ones are staying there at a high price. And so biosimilars' actually creating the headroom for innovation. So we do believe those are important. But it is going to be a tough market. You have to invest significantly to develop a biosimilar. You have to actually go out there and market them and then you're going to compete on price. And I think you're going to see some consolidation in that sector just like we saw with the small molecules. And I'm not sure that culturally, that's really where Biogen is naturally. But I do think it's an important business. And I have to say the team at Biogen have built a very successful business. It's close to a $1 billion business. And so we have to think carefully about it, but I'm very much also of the mind that we have to focus on really we're best at. And that's where we're questioning what the future of that is.

Times have clearly changed when we were doing a Biogen fireside chat in the last minute, we're going to ask about multiple sclerosis. What is the outlook for multiple sclerosis? How do you see the overall business trending over the next several years?

I'm feeling the level of disappointment that I have felt so many times in my career of being in a company that has really developed such strong relationships with the prescribing community with patients and then we failed to come up with the next level of innovation. And so we don't have a product coming along. A lot of physicians still love TYSABRI, for example. We still have a lot of patients on AVONEX, and we have to continue to serve those patients. But we're going to be faced increasingly with competition from biosimilars that we just talked about. And also from small molecule generics in the case of TECFIDERA, for example, in Europe, which still hasn't been fully genericized. What's interesting is it doesn't seem to be anything new anywhere. I mean I think what we haven't seen is a real disease-modifying approach. We are still investing in research and development. It's early. So we are by no means abandoning multiple sclerosis, but we have to say that we would have otherwise a revenue growth gap if we don't expand beyond the horizon of multiple sclerosis.

Great. With that, I think we're out of time. Thanks so much.

On time, on budget. Well done, Phil. Thank you.