Biogen Inc. (BIIB) Earnings Call Transcript & Summary

Awesome. Thank you very much. Thank you, everyone, for joining us today. [ Session 2 ] for me. So we have Biogen management team with us today. We have Robin Kramer, the Chief Financial Officer of the company, and we also are joined by Adam Keeney, the Head of Corporate Development of the company. Thank you very much for joining us today.

Thank you for having us.

Great. So I think -- I think I'm hosting you for the first time at the Wells Fargo Conference. So again, thank you very much, you and Tim and IR team basically, for making it happen.

So Robin, it has been 1.5 years for you as a CFO of the company, and a lot has changed at Biogen in those 18 months. So from your lenses, where do you think Biogen has done really well in those 18 months or so? And where do you think that you see the room for improvement, as there is always room for improvement.

Thanks for the question. It's actually been an incredibly exciting time to be the CFO at Biogen. I've been at the company now almost 8 years, but in the CFO role just over 1.5 years. And it's really been an exciting time under Chris' leadership. And I think he was very clear from the get-go on what the strategic focus for the company was and really diversification of Biogen and its portfolio, but also returning the company to growth. And so when I look at the really significant progress we've made on a number of fronts, the first would be that -- the launch of the growth products and the key products there. We've really had an opportunity to launch those effectively and help to offset the erosion in the MS portfolio. So really putting the base business in a really good spot. Also looking at the pipeline and looking at diversification of the pipeline beyond the neurology area and really broadening that. And execution of transactions that supported that, like HI-Bio and the felzartamab assets and then really taking that updated and revised pipeline and pulling programs into Phase III. And so we now have 10 Phase III programs, and those begin reading out here in the fourth quarter. So we're really -- the pipeline is a pivotal point for us from a growth perspective. And really deploying capital in things like the Apellis acquisition, which has the opportunity to have near-term growth both top and bottom line, while we wait for the pipeline products to launch and contribute to the long-term trajectory of the company. So in midst all of that, we really continue to be focused on managing the OpEx, making sure we're also delivering growth on the bottom line. And I said that, that's a bit of a tricky thing when you're investing in the launch products, but also deploying capital into the pipeline, but that continues to be an area of focus for us.

Got it. And I think I just go back to, I think, January of 2024, where Chris laid out that for a product revenue base of about $8 billion of expense base is a little bit higher than what it should be. And it kind of coincided with you being the CFO of the company as well. So for both of you, this question is that you did trim some pipeline, you prioritized some assets there. So what was the philosophy behind -- like what -- what is the guiding principle there that these are the assets you will take forward versus these are the assets which are here?

Yes. So I have the opportunity to lead the project around the Fit for Growth initiative, which was our initiative to look at the cost base and infrastructure to make sure that we were taking a prudent approach to optimizing that. But also, we were at a pivotal time where we needed to redeploy investments from the MS portfolio to the 4 launch products, including LEQEMBI, SKYCLARYS, ZURZUVAE. And so the process of doing that was very much a holistic contribution by everyone in the organization to make that pivot. But it was necessary in order to have the capital to put towards -- deploying towards the launch products. And from a philosophical standpoint, being very disciplined in thinking about capital allocation has been a strong suit coming out of the Fit for Growth, making sure that from an R&D portfolio perspective, that we were investing in those assets that we had the highest conviction on and really making sure that we're advancing those 10 Phase III programs where we are really focused on making sure that we're bringing those to market and that they're set up for the highest level of success.

Got it. And there's another thing which -- which I have noticed that like it was like an over-index [ company ] to neuro to like, I mean, now you are more I&I and all that. So that is also part of that just to manage the overall riskiness of the business probably?

Yes. Chris, very -- really from the get-go was looking for making sure that we were diversifying the pipeline. Beyond neurology and having these high-risk high-reward bets as it relates to progression of assets in the pipeline and diversifying in areas that -- where we believe we have a right to play rare immunology. And maybe I'll hand it to Adam because he's been the architect behind finding these wonderful assets for us to put into the pipeline and to put us on that trajectory.

So Chris joined Biogen just over 3.5 years ago. I joined about 6 months after that. And one of the early conversations was how do we diversify outside of neurology. Historically, Biogen had taken the hardest path possible, trying to find first-in-class unvalidated biology in new spaces without any clinical or regulatory precedent to really build de novo brand-new markets. And so we said to ourselves, well, we can do that in some instances in certain areas, but we can't do that across the portfolio. So we were very intentional to look for opportunities that were in areas that we had conviction from a data standpoint, but where the endpoints were validated, where the Phase II studies were approachable, where the Phase III designs were understood, where the endpoints were clear and where you have a faster opportunity to get to a commercial product. So if you take nephrology as an area now, this has been an emerging area of interest in the last 10 years due to the fact that you can use [ proteinuria ] as a validated surrogate but then EGFR is a very well recognized full approval end point. So with the HI-Bio acquisition, [ bonus ] felzartamab, that was our entrance into nephrology, but the overall risk profile there is very different. And then we leverage that opportunity across 4 indications within nephrology. So we can -- you can see that there's a pipeline in the product there that has a very different risk profile, different investment profile compared to an Alzheimer's project, for example.

Got it. So glad that you mentioned felzartamab HI-Bio drug. So investors do see multiple indications there, AMR, IgAN and all that. But because the uncertainty around duration and whatnot. They are struggling to understand the size of all these opportunities. So if you had to rank like AMR to IgAN and all that. [ IgAN ] is a little bit more competitive and members of [ properties ] there. So how would you rank them? Like how would you think about this overall size of these markets here?

I think we think of AMR as the foundational opportunity for felzartamab. AMR currently -- antibody-mediated rejection of kidney transplantations is -- has no approved therapeutics. There's 11,000 patients in the U.S. that have secondary rejections for their transplantation. It's a very, very significant health care burden. And so we see felzartamab in AMR post of the first data readout but also as the opportunity to expand from there. If you look at the overall pricing dynamics in nephrology space, they're actually seeing a very robust pricing. So we're able to actually anchor felzartamab at a high price into a well-defined high unmet need indication. And that data will replicate the Phase II data that was really transformational in terms of the ability to save the graphs and save the transplant. So a really unique opportunity. From there, we can expand into IgAN, PMN MVI. And there, we can leverage, again, the regulatory and clinical expertise and knowledge that has been built over the last few years to give us a differentiated value proposition. We see this as a unique opportunity where you can have a course of therapy, reset the immune system, but then it provides a durable response. So we think that, that actually for -- in IgAN, for example, which is younger patients, that's an attractive profile where you have your administration, then you have a drug holiday, you track disease and only redose if disease recurs. So we think that's an interesting value proposition that's differentiated. And then felzartamab with CD38 has the opportunity to explore non-nephrology indications, and we've launched 2 additional proof-of-concept studies in Phase II. So we see really a broad scope exploring, not only in nephrology, but also CD38 as a mechanism for autoantibody-driven diseases. So we see a lot of value there and a lot of longevity in terms of the franchise that can be built behind that product.

Which 2 indications are those?

We've not disclosed that...

Okay, got it. Yes, got it.

And one of the exciting things about that transaction is that we took a different approach there. And -- approach being to lead the team in place, create the opportunity to have a West Coast hub and to make sure that we were creating an environment where they could continue to accelerate these potential additional indications into the clinic. And so it's been quite productive even since the point where we did the acquisition on advancing the programs into Phase III. So the ones that are in Phase III now all advanced in the time since we've actually acquired the company and then the moving of the additional indications into the clinic. So leaving them in place, agile, executing on the work that they're doing in order to try and get to the clinic and to market as quickly as possible.

Got it. Very helpful. So one question I have is that like -- so when I look at your P&L for next 5 years, I mean, projections and all, OCREVUS royalties still contribute a meaningful portion of the profits right now. And there's a step-down coming of [indiscernible] biosimilar launches. But before that step down, you have multiple cards turning over from the pipeline side, salanersen launch, HDs, SPINRAZA and all that. So I mean, when you think about 2028 to '30 time frame when all these launches are happening, what factors do you think would be more important for us to understand whether you could grow through this. Like it's not a patent cliff in a traditional sense, but it is kind of a cliff in the -- on the P&L. So how would you think about -- how do you make us think about that?

Yes. First, I would focus on the breadth of the Roche Genentech relationship. So we have the right -- we have our royalty associated with OCREVUS. So I'll touch on that one first. So there -- they recently lost this -- launched the subcutaneous version of OCREVUS. And they've had quite good traction on that. So if you think about the time frame around when folks are thinking about this or trying to project that, we're going to be at a higher level given the subcutaneous in the transaction there of the exit at the point of the entry of the biosimilar. So exiting dollar revenue ramp. In addition, we have, through the profit share, we have rights in RITUXAN and GAZYVA. And GAZYVA, actually, they've had the approval, both in the U.S. and the EU as it relates to lupus nephritis this year. So then we have a launch product happening there. So as the OCREVUS, it will still be in that launch phase and not at peak revenue at the time that we hit the endpoint on the -- at the point of the step down on the OCREVUS. And then I would say the work that we've been talking about having done over the course of the last 3 years has diversified our revenue portfolio. Some of this diversification or investment has been in growth products that we had in the portfolio like HD for SPINRAZA, which is -- we're having a really great infiltration of that across the patient population. And so that's off to a really great start. So even in the products that have been in the portfolio for a bit, we still have opportunities as it relates to that. And so then across TYSABRI, we've had good resiliency there, which has been important. And then very importantly, the transaction that we did with Apellis added 2 additional commercial products to our portfolio and increased diversification top line as well. And so the breadth of our product offering and commercial products is quite different than it was 2 or 3 years ago.

Got it. Completely makes sense. So why don't you talk about the Apellis deal as well here? So investors are still not fully convinced about the durability of SYFOVRE as. And they understand the C3G asset a little bit more and the durability there, but SYFOVRE, they're still digesting this, the durability part of it. So what could we learn in the next 12 months in terms of discontinuations, persistency and all those aspects that will help us like get more comfort around this?

Yes. So if we just think about the geographic atrophy market, it's a very large market but very underpenetrated. So both products actually have the opportunity to really add new patients. And I think that is the key to activating physicians and patients around the urgency to treat and the need to intervene early and maintain treatment. So we're looking at both adding new patients, and we're considering DTC and other campaigns to improve awareness of the need to treat GA, the availability of effective therapeutics. But then once patients are on treatment, maintaining the treatment is a critical factor. And because this is a treatment that you don't see an immediate visual benefit, you've got to continue to educate the patient for the need to be retreated. And so we're doing a lot of work commercially around how do we ensure persistency. So I think new patient starts and persistency are critical, but the opportunity to grow SYFOVRE but also the space is very considerable, given the large number of patients that are available in the U.S. So there's a very significant opportunity for growth, but it's really about bringing new patients in and maintaining treatment for those patients that are on therapy.

Got it. Very helpful. And then the financial side of the question here is that you did talk about at least $250 million of run rate synergies by the end of '27. So how much of that is already locked in versus dependent on execution? And then -- like what would make the numbers to move -- numbers to move higher or lower here?

Yes. So as it relates to 2026, so it will be dilutive in 2026, but we've already implemented some of the cost actions and -- and largely, the dilution is being driven by the interest expense. So from an operating margin perspective, we've already done some rightsizing there. As we exit the end of the year, most of the actions will have taken place. We'll still be doing some system type integration activities through the middle part of next year. And as you noted, what we've indicated is that exiting next year, annualized savings are expected to be roughly $250 million. That is largely being driven by R&D and G&A. As we've said, one of the strategic elements of the Apellis acquisition was bringing on the medical and commercial nephrology expertise in anticipation of the felzartamab AMR launch. And so the sales and medical organizations are essentially being left intact. So our optimization activities are really in that R&D and G&A area.