Biogen Inc. (NASDAQ:BIIB) Q1 2023 Earnings Call Transcript

Biogen Inc. (NASDAQ:BIIB) Q1 2023 Earnings Call Transcript April 25, 2023

Biogen Inc. beats earnings expectations. Reported EPS is $3.4, expectations were $3.28.

Operator: Good morning. My name is Bettina and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen First Quarter 2023 Earnings Call and Business Update. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Today’s conference is being recorded. Thank you. I would now like to turn the conference over to Mr. Chuck Triano, Head of Investor Relations. Mr. Triano, you may begin your conference.

Chuck Triano: Thank you, Bettina. Good morning and welcome to Biogen’s First Quarter 2023 Earnings Call. Before we begin, I encourage everyone to go to the investors section of biogen.com to find the earnings release and related financial tables, including our GAAP financial measures and a reconciliation of the GAAP to non-GAAP financial measures that we will discuss today on the call. Our GAAP financials are provided in Tables 1 and 2 and Table 4 includes a reconciliation of our GAAP to non-GAAP financial results. We believe non-GAAP financial results better represent the ongoing economics of our business and reflect how we manage the business internally. We have also posted slides on our website that follow the discussions related to this call.

I would like to point out that we will be making forward-looking statements, which are based on our current expectations. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. On today’s call, I am joined by our President and Chief Executive Officer, Chris Viehbacher; Dr. Priya Singhal, Head of Development; and our CFO, Mike McDonnell. Chris, Priya and Mike will each make opening comments and then we’ll move to the Q&A session. To allow us to get through as many questions as possible, we kindly ask that you limit yourself to one question. I’ll now turn the call over to Chris.

Christopher Viehbacher: Thank you, Chuck. Good morning, everybody. I’ll start by first welcoming Chuck Triano as our new Head of Investor Relations. Great to have you on the team, Chuck. On our last call, we described five priorities for the business that you see on the first slide here. And during the first quarter, I think we made a lot of good progress against those five priorities. We are continuing to work toward the potential launches of LEQEMBI in Alzheimer’s disease and Zuranolone in both MDD and PPD. And I’m going to cover that on the next slide because it’s really in some ways a super priority. On the next point on improving the risk profile and productivity of R&D, Priya will review the steps to take — taking to improve the risk profile of the productivity of R&D and you’ll see that in greater detail.

So I’m going to cover a little bit more on the cost base. The first thing I’d like to say is that we’ve made good progress on the previous program that had announced a billion dollars of cost savings. That — those billion dollars have been secured and have been — that program is complete. But over the last several months, I have been getting a better understanding of how the company operates, working with our senior leaders and thinking about how we operate at all levels of the company. We kicked in early at a global regional and affiliate level. And as we said before, we do have a higher cost base than the average company in our category. And so we’ve initiated an additional program to align our operations and cost base with the expected revenue while leaving enough money for the upcoming launches.

And we internally refer to this program as fit-for-growth. And really what we’re trying to do is balance the opportunity for profitable growth by investing in our product launches and the R&D projects that we deem priority with an attempt to try to reduce that cost base and get that back to something that looks a little bit more in line with our competitors. Now that’s not just a simple job of taking out costs. What we’re really trying to do is redesign the company. We have these two launches. They’re going to have different geographic points of focus at the start. We won’t have Zuranolone for few years outside of the US. Zuranolone is clearly a top priority in the short-term in the US. And outside the US, we’re going to be certainly focused on the LEQEMBI launch in the first instance.

So one of the things we want to do is make sure that we don’t lose what is good in the company and what has been working. We also have to remember that we are still a leader in multiple sclerosis. There are lot of patients who depend upon our products and we have to make sure that the physicians who treat those patients have adequate information. So there is a balancing act as we tried to shift our resources behind the growth opportunities while still supporting our historic MS business. And so we’re taking a — essentially a bottoms-up and a methodical approach to this. This could have a much different approach to our operating model. We’ve been 45 years in multiple sclerosis with a limited product profile. Yes, we had at one point some products in hemophilia and obviously we have SPINRAZA.

And as a result, we had an awful lot of centralized cost. Right now, we’re looking at how do we get a lot more of our resource and our attention closer to the customer. So it’s a redesign effort and it’s meant to be durable. So, we do recognize that there is an opportunity to reduce cost, but we really are looking at something more transformational that really sets the company up for growth. We’ll be able to say more about that in Q2. Another priority is really managing the base business. There’s two dynamics in the company. We are a leader in MS, but that business is increasingly affected by competition. And we have growth opportunities with LEQEMBI and Zuranolone. So on the base business, the idea is how do we manage that business as profitably as we can.

We did receive a favourable decision from the Court of Justice of the European Union related to TECFIDERA regulatory data and marketing protection, which was an important reinforcement of intellectual property and exclusivity rights. We believe this provides us marketing protection until at least February of next year. And we are looking to enforce that protection, but it will take a little time for the market to settle. And separately, we also continue to enforce our 2028 patent for TECFIDERA in the EU. We’re also looking to aim to — we’re looking to maximize the profitability of the MS franchise. Up until now, the goal has been to defend revenue at all cost. I think now we want to take a little bit more of a nuanced approach of looking at where the opportunities in MS, where do we have intellectual property, where do we have still sales promotion sensitivity and tried to align our resources with that and perhaps look at other means of promoting products that are a little less expensive.

We do believe that SPINRAZA can return to growth and we are seeing stabilization up there in the marketplace, gene therapy has not for everyone. And the oral therapy has its limits and there are still quite a few patients that suffer from SMA that don’t benefit from any treatment. And as we announced at the previous quarter, we do have a formal process underway to evaluate strategic options for our biosimilars business. This is a very good business and I think especially with the launch of biosimilars for Humira, we are seeing an opportunity for the healthcare system to make important economies that help fund innovation and we need to think about who is the — and how is the best way to manage this business and who might be the best owner of that business.

On external growth, we’re looking at external growth really from two perspectives. One is how do we balance the company a little bit more on its pipeline. It has been very neuroscience focused. But as I’ve argued in the past, I think with MS, which is basically an autoimmune disease, I think we could migrate into immunology. With SPINRAZA, I think, we have an experience in rare diseases and that will be reinforced with Tofersen. And, of course, we’re in neuropsychiatry with Zuranolone. So these offer opportunities to think about how do we build out some of those franchises. Yeah, there is, no, I did describe this dynamic of the MS franchise declining slightly and new growth coming and we may look at external growth as a way of making sure that that transition is as smooth as possible from a results point of view.

And I’m pleased to say that we have appointed Adam Keeney as our Head of Corporate Development. Adam has over 20 years of experience, not just in business development, but also in R&D and strategy across both large pharma and he was the CEO of a Biotech. So I think he’s got some entrepreneurial spirit that will be very welcomed at Biogen. We do see LEQEMBI and Zuranolone as major contributors to revenue, but we want to continue to think about business development to support the growth trajectory and diversified as I said. So if I could have the next slide please. So we really got an unprecedented opportunity. We have today a PDUFA date for Tofersen. We have a PDUFA date on July for LEQEMBI and a PDUFA date in August for Zuranolone. I can’t think of another major biopharmaceutical company that has that many new significant products to launch.

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That’s a huge opportunity. But as I said earlier, we have to think about capabilities on that. These are going to be different areas. Obviously, LEQEMBI is little closer to home, since it’s still in neurologist, but there’s an awful lot of market building we will have to be done there. And, of course, Zuranolone takes us into a much different area and a much different position franchise. But we’re making our milestones. We received accelerated approval in the US back in January. We filed for traditional approval in the US on the same day and within the EU, Japan and Eisai initiated regulatory filing in China. Filing all of those dossiers in that kind of timeframe is really quite significant and I have to congratulate our colleagues at Eisai for this effort.

These filings have received priority review in the US, Japan and China. And, of course, a major milestone in that Veterans Health Administration has decided to reimburse LEQEMBI. Now, LEQEMBI is going to be the first anti-amyloid antibody to receive traditional approval globally hopefully in July. As we said, this is not a straightforward launch, it’s a complex diagnosis involving PET scans, lumbar puncture for amyloid confirmation, specialists who are already busy, MRI imaging, bi-weekly infusion. And we know that capacity could be an issue initially. CMS reimbursement will be the next major milestone, which we expect to have an answer on once the product has received full approval as expected following the PDUFA date in July. More importantly though, we are looking at how do we right now alleviate those bottlenecks.

Yes, CMS is there, but both companies are already thinking about what we can do to make this easier for patients and actually reduce cost. Eisai and Biogen are pursuing maintenance dosing in the subcu formulation. Blood-based diagnostics, as I’ve said in the past, are really going to be a game-changer in this space. And we believe that over time, capacity is going to expand to meet the need. For reimbursement, this is a big question, the Veterans’ Association is certainly helpful. I would just point out that compared to the situation that ADUHELM faced, we are getting a lot more support from Congress. The American Association of Neurologist has written in support. And I know that a number of patient advocacy groups are active and ensuring that patients have access to this important therapy.

So Eisai is responsible under the contract for engaging with CMS and we would hope to see broad coverage coming out of the CMS decision. Now I’d like to talk about Zuranolone just for a few minutes. I mean, Zuranolone is still I think an underestimated asset in our portfolio. Unfortunately, a lot of people suffered from depression, so it is a large market. There are clearly a number of older medicines that are available. The main problem with those are the side effects of those medicines and the length of time it takes for them to work. And Zuranolone works potentially in three days and it’s going to be a different type of launch because we’re talking about a treatment that works in two weeks. The only analogue I can find that is in a way similar was Zithromax.

So we do know that there is going to be some need for education, physicians are used to treating on a chronic basis. As we launch even, we’re going to have to think about different metrics. One of the things in the launch that you look for is when the NRxs switched to TRxs. Well, we’re not going to see that. They are not going to be TRxs with the product. So I think there are these changes in physician behaviour. This is a paradigm shift and paradigm shift is not always a good thing in pharmaceutical marketing as we know. However, what really drives us, this is a product that really makes a difference for patients. This is a product that, well, it’s efficacious, it works fast. And think about the freedom of knowing that after two weeks that you can stop taking Zuranolone.

So I think that is going to be an enormous opportunity. And I’ll just finish with Tofersen on this, it is not a big product obviously, about 300 patients. But it’s classic Biogen. There is a — we have a long history in ALS, lot of setbacks. But the organization has an ability to learn and adapt and Biogen was able to partner with the scientific community to help characterize neurofilament as a biomarker in neuromuscular disorders. This is a huge deal because neurofilament will be relevant to a lot of researchers who are looking at ALS. So I think we’ve got some ground-breaking science here. And this is where Biogen has had the resilience to go after a lot of significant unmet need that — has resolved things in a way that not everybody has been able to do.

Next slide, if I could. We’ve got a number of milestones coming, as you can see here on the slide. By our Q2 call, we would expect to be in a different place with LEQEMBI. We should hopefully have the PDUFA date behind us successfully. Hopefully, we’ve received a traditional approval and broader CMS coverage in the US. And, of course, we’ll be communicating more about our fit-for-growth cost optimization program. By the end of this year, hopefully we’ve got the first ex-US approval of LEQEMBI in Japan and hopefully we’ll have received the approval for Zuranolone in both MDD and PPD as well as having completed a three-month DEA scheduling period and initiated the launch. And if I look further ahead by the end of — by the time — this time next year, I think we have an opportunity to build a global footprint of LEQEMBI with approvals in Europe and China.

And, of course, we’ll take the next steps on evolving the treatment paradigm with Alzheimer’s disease with an expected regulatory filing of LEQEMBI maintenance dosing. We would also expect regulatory filings for subcutaneous dosing, which could facilitate at-home administration. So in conclusion, through a combination of ground breaking of sign, high-potential near-term commercial opportunities and diligent capital allocation. I think Biogen is going to be well-positioned for the sustainable long-term growth. I’d like to now turn it over to Priya for an update on our progress in R&D.

Priya Singhal: Thank you, Chris. Last quarter, we made important progress advancing key pipeline programs. As Chris just pointed out, we now have the opportunity to deliver three potential new drug launches across four indications this year, all in areas of high unmet need, including Alzheimer’s disease, major depressive disorder, postpartum depression and SOD1-ALS. We also continue to evaluate potential opportunities for geographic and indication expansion for Zuranolone as we work with our collaborator Sage to prepare for a potential US launch later this year. I will share key highlights from the quarter across broader efforts in Alzheimer’s disease, the Tofersen program in SOD1-ALS and the progress that we’re making to rebalance the risk profile and improved productivity of the R&D pipeline.

I will now share highlights of additional analysis Eisai recently presented or published, consistent with both companies’ commitment to transparency. First, regarding activities of daily living. New analysis of ADCS-MCI-ADL presented at AD/PD last month, showed that all individual items of this scale favoured LEQEMBI at 18 months as compared to placebo. This includes items like ability to make a meal or keeping appointment. This result also measures Clarity AD study outcome on the CDR sum of boxes where LEQEMBI treatment slowed decline across all six individual domains at 18 months versus placebo. Additionally, results from Clarity AD showed that at 18 months, LEQEMBI treatment resulted in a 50% less decline from baseline on scales designed to assess quality-of-life and reduced care partner burden as compared to placebo.

In addition was also presented an updated analysis of ARIA from the CLARITY AD study to evaluate ARIA incidents in LEQEMBI-treated participants on antiplatelet or anticoagulant drugs as compared to LEQEMBI-treated participants that were not on either. The results were encouraging and showed that ARIA incidents were similar in the two groups. In addition to the data presented at AD/PD, newly published analysis from LEQEMBI Phase II study reinforce the finding that while plaques level begin to return slowly after treatment discontinuation, other biomarkers of AD biology such as Plasma Abeta42/40 ratio re-accumulate quickly. We believe these findings further support the potential benefit of continued treatment with LEQEMBI after plaques have been removed.

Building on their prior work, Eisai published a new analysis of the long-term health outcomes associated with LEQEMBI treatment. Updated analysis incorporated data from the Phase III CLARITY AD study, replacing the prior modeling that used Phase IIb study results. The analysis of the Phase III data, consistent with the analysis of the prior Phase IIb study results, showed that LEQEMBI resulted in a delay of approximately two to three years in meantime to progression to mild, moderate and severe AD dementia versus standard of care alone. We believe these results build upon and reinforce the significant body of evidence that has been generated on LEQEMBI. Biogen is committed to building on a deep expertise and experience in Alzheimer’s disease by advancing an industry-leading Alzheimer’s pipeline that is diversified across therapeutic modalities and molecular targets.

This includes focusing on tau. Intracellular neurofibrillary tangle, which represent a pathological hallmark of Alzheimer’s are composed of hyperphosphorylated tau protein. Unlike amyloid plaques, which are observed to build up in the brain years before the onset of cognitive symptoms, tau tangles are more closely related to the neuronal cell loss and onset of clinical symptoms. To address our pathology, we are advancing BIIB080, an antisense oligonucleotide targeting tau mRNA aiming to reduce all forms of tau protein. Importantly, this is a very different approach than utilizing a tau-directed antibody which is hypothesized to target only extracellular tau. We were encouraged by the early results of this ASO-based approach as evidenced by the BIIB080 Phase Ib data in Alzheimer’s disease which were presented last month at AD/PD and also published in Nature Medicine, which went live online yesterday.

Phase Ib data shown here on the slide. BIIB080 was generally well tolerated. Majority of adverse events were mild or moderate in severity. Of which the most common were headache, back pain and post-lumbar puncture syndrome. We observed a time and dose-dependent reduction in CSF total and phospho-tau across the multiple ascending dose and long-term extension periods. Total tau continued to decline 16 weeks following the last dose in the MAD portion of the study, both in the high dose Q4 weekly and the Q12 weekly dose and we saw a 50% reduction from base lines. We observed an effect on neurofibrillary tangle, as visualized, via tau PET as early as 25 weeks across all brain regions assessed. Reduction in tau burden in all treatment groups at the end of the open-label extension at 100 weeks.

The BIIB080 study is the first to demonstrate this magnitude of tau PET reduction across brain regions. Encouraged by these early results, we continue to enroll the Phase II CELIA study of BIIB080 in early Alzheimer’s disease, where we are exploring different dosing regimens, including every 12 weeks and every 24 week dosing. Last month, an advisory committee by the FDA met to review the Tofersen data in SOD1-ALS. The advisory committee unanimously agreed that reduction in plasma neurofilament light is reasonably likely to predict clinical benefit of Tofersen for the treatment of SOD1-ALS. And they also reached a consensus that the benefit-risk profile was favourable. As Chris mentioned, Biogen has spent years collaborating with the scientific community to characterize neurofilament as a marker of axonal injury and neurodegeneration and we view the outcome of the advisory committee as a significant advancement for the field.

We believe these developments also inform our other programs in ALS, including BIIB105, an antisense oligonucleotide targeting ataxin-2 which may have therapeutic potential in the broader ALS population. BIIB105 aims to reduce ataxin-2 protein levels, which we hypothesized will reduce toxic TDP-43 clusters that are observed in nearly all people living with ALS. Preclinical experiments confirm that reduction of ataxin-2 levels modified survival and function in a mouse model of TDP-43 ALS. The Phase I/II study of BIIB105 in ALS is expected to read out early next year. We continue to advance our R&D prioritization efforts with the goals of optimizing the value that our pipeline can deliver. This includes investing in areas where we have a strong conviction in the disease biology.

We continue to invest in further data generation for LEQEMBI and Zuranolone and remain focused on executing key clinical studies, including BIIB080 and BIIB105 as well as for litifilimab in lupus. We also made the decision to opt in to Denali Antibody Transport Vehicle A-beta program. With the ATV A-beta, we aim to safely increase exposure of A-beta antibody in the brain. This may enable improved plaque clearance and/or lower incidence of ARIA. We are also deprioritizing programs based upon our integrated view of development, regulatory and on commercialization challenges. Recent updates include that we decided to terminate involvement in the development of BIIB093 programs in large hemispheric infarction and brain contusion due to operational challenges and strategic considerations.

We decided to pause initiation of the Phase IIb study of BIIB131 in acute ischemic stroke as we reassess whether we need to initiate the study. We discontinued BIIB132 in spinocerebellar ataxia type 3. We previously announced that we had refocused our investment in gene therapy and we will continue to look to advance technology associated with the safe delivery of these therapies to the right targets in the body which we believe is one of the most critical scientific and technical challenges that is currently associated with this modality. We also had previously announced that we exited ophthalmology research with goals of reallocating resources to areas where we believe there is a greater probability of success. This will be an ongoing process, involving dynamic scientific prioritization and investment based on an ongoing assessment of probability of success, but we expect to complete our initial substantial review by midyear.

In conclusion, Biogen has had a significant number of accomplishments this past quarter, which we believe highlights the ability of our R&D organization to capitalize and deliver on ground-breaking science in the pursuit of new medicines for patients. With key assets in areas like Alzheimer’s disease, depression, ALS and lupus, we believe the Biogen pipeline has the potential to deliver significant growth over the medium and long term. I will now pass the call over to Mike for the financial results.

Michael McDonnell: Thank you, Priya. Good morning, everyone. So I’ll provide some highlights of our financial performance for the first quarter and please note that all financial comparisons that you will hear are versus the first quarter of 2022. Total revenue for the first quarter was $2.5 billion and that’s a decrease of 3% at actual currency and flat at constant currency. Non-GAAP diluted earnings per share in the first quarter was $3.40, a decrease of 6%. Total MS product revenue was $1.1 billion, a decrease of 19% at actual currency and 17% at constant currency. I’d like to provide a few points here regarding MS during the quarter. In the U.S., we continue to see the impact of TECFIDERA generics declines in the interferons and competition for TYSABRI.

As we noted in our last call, Q1 is typically a seasonally weaker quarter for our MS business in the U.S., and that’s driven by higher discounts and allowances and some channel dynamics. And as it relates to channel dynamics, we did see a greater-than-expected decrease in channel inventory which added a few percentage points to the overall global decline. And we believe this is likely related to tighter working capital management in wholesalers and specialty pharmacies, due to the rising interest rate environment. In addition, VUMERITY is being impacted by both pricing pressure and a contraction of the oral segment of the market in the U.S. And as a reminder, in Q1 of last year, VUMERITY did benefit from a favourable Medicaid-related sales adjustment which also impacts the year-over-year comparison.

As far as Europe, as you know, we received a favourable decision relating to the TECFIDERA regulatory data and marketing protection in the EU and that was assumed in our guidance. So we believe that TECFIDERA is entitled to regulatory marketing protection in EU until at least February of 2024 and we are working to enforce this protection. I would add that we did expect it would take some time following the decision for all generic products to be off the market and we are assuming that this exit will accelerate in the near term. Separately, we continue to enforce our patent which expires in 2028. So as we look toward the remainder of the year, we do expect to see a slower rate of decline on a year-over-year basis versus what we saw in Q1. We’ve taken some actions which aim to improve the underlying revenue trajectory for our MS portfolio in the second half, including for VUMERITY in the U.S., and we’re continuing to closely monitor the underlying market dynamics in MS closely.

Moving to SMA. Global SPINRAZA revenue of $443 million was a decrease of 6% in actual currency and 2% at constant currency. In the U.S., SPINRAZA revenue decreased 10% due to fewer new patient starts and some channel dynamics as compared to the first quarter of last year. However, we do continue to see what we believe are signs of stabilization in our patient base. Outside the U.S., revenue for SPINRAZA decreased 4% at actual currency and increased 2% at constant currency with competition more than offset by the timing of shipments in certain markets. Biosimilars revenue was $192 million, and that’s a decline of 1% at actual currency and an increase of 4% at constant currency and that’s due to volume growth driven by the launch of our BYOOVIZ product partially offset by continued pricing pressure for our anti-TNF products in Europe.

Alzheimer’s disease revenue, which includes revenue from ADUHELM and the LEQEMBI collaboration equated to a headwind of $18 million to revenue. As a reminder, beginning this quarter, our share of LEQEMBI commercial expenses in the U.S. is recorded as a component of revenue, thus the negative number this quarter. And for this line item, we expect this to continue to be negative in 2023 as ramping LEQEMBI commercialization expenses throughout the year are expected to exceed initial revenue. Total anti-CD20 revenue of $399 million was flat. Revenue from OCREVUS royalties increased 12%, which was partially offset by a 25% decline in revenue from our profit share on RITUXAN, and that was driven by biosimilar competition. The anti-CD20 revenue line also included a $10 million operating loss related to LUNSUMIO.

I’d note that our R&D expense for LUNSUMIO is also recorded as a component of the anti-CD20 revenue line. Important to note that starting in the second quarter, our pre-tax profit share percentage on RITUXAN, GAZYVA and LUNSUMIO will decrease from 37.5% to 35% and that sales targets for GAZYVA as part of our contractual agreement with Genentech. Contract manufacturing royalty and other revenue of $319 million benefited from the timing of production of some contract manufacturing batches which includes LEQEMBI. While this line tends to vary from quarter-to-quarter, we do not expect this level of contract manufacturing revenue to continue throughout the remainder of 2023. A couple of details regarding Q1 expenses. For the first quarter, non-GAAP cost of sales was $663 million or 27% of revenue.

This includes $45 million of idle capacity charges which Eisai no longer shares. During Q1, we did see pressure on cost of sales associated with product mix. We saw increased contract manufacturing revenue which has a higher cost of sales including manufacturing revenue for LEQEMBI which is at minimal gross margin. We continue to expect our cost of sales as a percentage of revenue for the remainder of the year to be higher than the 22.4% that we saw for full year of 2022 and that’s primarily as a result of product mix and idle capacity charges. First quarter non-GAAP R&D expense was $571 million and that compares to $552 million in the first quarter of last year. Non-GAAP SG&A was $603 million and this compares to $635 million in the first quarter of 2022.

The decrease in non-GAAP SG&A expense was driven primarily by cost savings initiatives which importantly were partially offset by investments to support new product launches and $31 million related to the termination of the co-promotion agreement with Eisai to Biogen’s MS products in Japan. We continue to expect operating expenses to be lower in the second half of 2023 than in the first half. And as Chris mentioned, separate from the previously announced $1 billion cost savings initiative, we have initiated our fit-for-growth program in order to align our cost base with expected revenue while also investing in our growth opportunities. And we expect this program to have a modest impact on 2023 expenses and a more meaningful impact in 2024 and beyond and we’ll have more to say about this on our second quarter earnings call.

As for our balance sheet, we ended the quarter with $6 billion in cash and marketable securities, $6.3 billion in debt and roughly $300 million in net debt. Subsequent to the end of the quarter, we received approximately $813 million related to the sale of our equity stake in Samsung Bioepis, which is not included in these cash figures. And this payment is the second payment related to this transaction which closed around this time last year and we’re expecting a third payment of approximately $438 million in April of 2024. In the first quarter, we generated $455 million in cash flow from operations. CapEx was $67 million. Free cash flow was $389 million. So overall, we remain in a very strong financial position with significant cash and financial capacity to invest in growing the business over time.

Let me now turn to financial guidance for full year 2023. We are reaffirming our full year guidance of a full year 2023 revenue decline in the mid-single-digit percentage range as compared to 2022 reported results and full year 2023 non-GAAP diluted earnings per share of between $15 and $16 and I would refer you to our press release for other important guidance assumptions. So in closing, Biogen continued to make strong progress against our business priorities in the first quarter. We remain focused on three potential launches in 2023 while continuing to be diligent in prioritizing our R&D pipeline, optimizing our operating model and also evaluating external opportunities. We expect that execution of these priorities will position us well for returning Biogen to sustainable growth and creating long-term value for our shareholders.

And with that we will now open the call for questions.

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Q&A Session

Operator: Thank you. Our first question comes from Phil Nadeau of TD Cowen. Please go ahead.

Phil Nadeau: Good morning. Thanks for taking our question. Our question is on LEQEMBI reimbursement. What is Biogen’s expectation for reimbursement post full approval? Do you expect coverage with evidence development or some other form? And second, when do you think that will be clear? CMS has suggested that the coverage will be revised on the day of approval. Is that going to be the final determination or will there be subsequent revisions after that? Thank you.

Michael McDonnell: Chris, do we have you? Do you want to start?

Christopher Viehbacher: Yes. I hope if I got off mute. Yes, thanks, Phil. Nothing really new to report there, at least as far as CMS. CMS has said that following full approval that they will be making sure that the product is broadly available. I think there will be a question of existing registry, what type of registry, is there a cap on the registry that hasn’t been defined at the moment. I think what really is encouraging is that we’re seeing an awful lot of support being mustered and encouragement of CMS to reimburse. As I noted earlier, the American Association of neurologists has come out strongly in favour. As a reminder, they sided more with CMS at the time of ADUHELM. So this is a change in position. Over twice as many members of Congress have written to CMS and did for ADUHELM.

And some of you may have been following the budget discussions in Washington and Congress with also an encouragement for CMS to make the product available. So we continue to believe that the product will be made available. We would hope that it’s not with a registry. There’s no real need for a registry. And we don’t really see why this product wouldn’t be reimbursed like any other product for Medicare. But we’re probably not going to see anything until after the PDUFA date.

Operator: We will now take a question from Paul Matteis of Stifel. Please go ahead.

Paul Matteis: Thanks so much for taking my question. I wanted to follow up a little bit more on external investments as it relates to reshaping your pipeline. Chris, you’ve outlined rare disease, psychiatry and immunology historically. It would seem like if you’re going to decrease the risk profile of your R&D strategy that immunology and rare would be more on the developmental side, whereas for a psychiatry asset you want something that was either clinically de-risked or commercial. Is that the right way to think about it? And what’s your appetite today for transacting before shoring up everything in-house? Thank you.

Christopher Viehbacher: Thanks, Paul. No, I think, you’ve got that correct. I mean, you could certainly look at some tuck-in acquisitions on the rare side. We have, as I noted earlier, appointed Adam as Head of Corporate Development and Business Development. I think another key figure will be the appointment of a new Head of Research and I would hope to have that person in place at least by the end of the summer. And that person, along with Priya and Adam, are really going to be the three that I’ll be working with to think about certainly from a licensing point of view. In terms of more transactions, I think we would be more inclined to find something that is revenue generating in the near term. If you look at Biogen, really from 2025 onwards, I think the company has an ability to grow pretty significantly.

But in the next couple of years, that’s where we’re in this — the tide going out on MS and the tide coming in on new products. We obviously have a lever with cost that we can use, but external growth could also help us to manage that transition period.

Operator: We will now take a question from Geoff Meacham of Bank of America.

Geoff Meacham: Good morning, guys. Thanks so much for the question. Chris or Priya on BIIB080, we’ve seen a lot of tau assets underwhelmed in trials as a monotherapy and you guys are in a unique position to assess tau along with LEQEMBI. So the question is, what do you need to see in Phase II to advance a combo? And strategically, how much of a priority do you think this would be? Thank you.

Christopher Viehbacher: Priya?

Priya Singhal: Yes. Thanks, Geoff. Great question. So I’ll just step back and say, obviously, Alzheimer’s disease is a very complex disease with multiple biologies and complex pathophysiology. We do see ourselves as pioneers in this space and we have been successful with demonstrating the A-beta plaques as being central. And now we’ve kind of shifted gears to looking at tau. As you know, we had a lot of experience with extracellular tau and this was actually not successful because BIIB092 didn’t work which was gosuranemab. And we have really focused now on knocking down all post-translational isoforms of tau. So that’s what BIIB080 is aiming to do. As we’ve shared, I mean, obviously, these numbers are small in the Phase Ib study that went online in a publication yesterday in major medicine.

But very encouraging because we have seen close to 50% reduction of total tau and the sustained reduction post dosing. So this is very encouraging. As we kind of think about Alzheimer’s leadership and we think about multiple therapies, we have to first assess how tau knockdown kind of translates into clinical outcomes, how much is fired. Because when you look at the mouse models, transgenic mouse models for tau, you do see that about 50% actually can rescue neuronal cell loss and memory. So it’s encouraging, but we need to see more data from Phase III. That’s exactly how we’re approaching it. Eventually, I think we do believe strongly that this is going to be a multimodality space and patients will probably need more than one therapy. Now whether it will be combination or which way you have to determine whether it’s synergistic or whether it could be additive that remains to be seen.

And I think we’re going to let the data drive us on many of these questions. But we’re looking at all of this very, very carefully. Right now, we’re focusing on tau knockdown, all isoforms, as well as our Phase I asset, which has been 113 which is looking at preventing tau aggregation. So that’s how we’re focusing our efforts.

Christopher Viehbacher: If I could just follow up on that though, I think, Priya, I mean this is — Priya noted that we’ve been through the pipeline and we have deprioritized some programs. But that’s not just in an effort to reduce cost, it’s really to be able to focus resources on those assets that we think are most promising. I can tell you, following the announcement of these results in Sweden and then also publication of the article in Nature. There’s been a lot of attention on BIIB080 particularly from neurology community. And I think this is one of those assets that we really want to focus on. We’ve actually already allocated more resources to accelerate this program. And as Priya said, this is really one of the first manifestations of what it means to build a leadership position in Alzheimer’s as opposed to just launching one product in this space.

So most complex diseases do end up being combination therapies and there is some likelihood that will be the case in Alzheimer’s. And to your point, I think Biogen is pretty well placed in that regard. And we’re certainly getting even external interest in this program.

Operator: We will now take a question from Salveen Richter of Goldman Sachs. Please go ahead.

Salveen Richter: Good morning. Thanks for taking question. On LEQEMBI, could you discuss your strategy here with respect to infrastructure, particularly infusion centers and testing post a potential full approval and assuming broad coverage by CMS?

Christopher Viehbacher: Sure. Thanks for the question. One of the most interesting things is that the companies actually went through a launch planning process with ADUHELM and actually commissioned a study to actually have a look and understand what the learnings of that are. And there’s an awful lot of chicken and egg syndrome going on here. Until there’s been an approved therapy and reimbursement, there often isn’t enough investment in other areas. We see this with blood based diagnostic for example. They’ve been around, but there’s no market for a blood based diagnostic until you actually have an approved drug and a treatment. And the same is true really for the investment in infusion capacity and PET scans and lumbar punctures and even the neurology capacity.

So what we certainly are seeing is that there is a lot more interest. There are a lot of parties who are looking to invest in some of this infrastructure. But right now, the world is almost in a point of, well, the starting gate is really CMS approval. One of the things that we also learned was, you want to flex your commercial investment with the ability of the system to actually meet patients. I think one of the things that we would do differently and are doing differently is that, at the time Biogen ramped up a huge commercial machine in advance of reimbursement and in advance of some of that expansion. As we work with Eisai, we’re being a lot more prudent in looking at, okay, let’s make sure we’re out there, we’re educating physicians, we’re thinking about who’s the right patient for this and working with the different centers to make sure we know which centers are — have the ability to see patients and process the patients with this complex treatment paradigm.

So it will expand. And I think some of that expanded already at the time of ADUHELM. But I but do think that we’ll see — we’ll get a better sense of where that’s going once we have the confirmation of CMS’s reimbursement.

Operator: We will now take a question from Umer Raffat of Evercore.

Umer Raffat: Hi, guys. Good morning. Thanks for taking my question. I thought I would get some clarity on the minus $19 million in collaboration profit share on lecanemab. And specifically, is there any color we can get on what the end user revenues could look like from this minus $38 million for the franchise for 1Q, even if it’s a fraction of $1 million. It would just be very helpful. And also has Eisai indicated to you on where they are or what percentage of the commercial build out has already been baked into this 1Q number or not? Because you can imagine there’s a lot of investor concern around how much SG&A they could possibly build into this collaboration, especially in light of some of the concerns around the strained relationship from the past, et cetera. Thank you very much.

Christopher Viehbacher: Thanks, Umer. Mike, do you want to take the first part of the question, and I’ll talk about the commercial infrastructure statement.

Michael McDonnell: Sure. No, happy to. So Umer, as you know, the line item that you’re referring to is the net of any revenue and commercial expense divided by two, basically, as you noted. And we are — we don’t have a number that we’re going to disclose on the revenue. What I can say is there was revenue during the quarter. It was minimal. The majority of patients on drug are cash pay. There’s not reimbursement yet, as you know. And I think the real game, so to speak, starts when we have reimbursement should we get approval and get to that point. So, yes, revenue was minimal. The majority of it was cost divided by two. And I’ll let Chris speak to the ramp from here.

Christopher Viehbacher: Yes. Thanks, Mike. Just in terms of relationship, I was in Japan last week and the CEO of Eisai and I had dinner. And I think our view is that the relationship and the partnership is actually working pretty effectively around the world. And as I said earlier, and I’ve said on a number of occasions, this is not a reach and frequency launch. So let’s not think about the fact that we’re just sending reps out and then that’s going to have some impact directly on sales. There’s an awful lot of certainly education that’s being done. We actually — Eisai has already reps out there in the field in the U.S. We, as Biogen, will likely — will add reps in the — at some point in the future, perhaps as early as next year, once reimbursement situation is known and the capacity increases.

As I say, one of the lessons that we have to learn is that you don’t want to get ahead of that. This is — the initial launch period is going to be really one that’s constrained by the capacity. And so there’s an awful lot of work working with the neurology community, educate how you diagnose the patient, the whole process in a practice of — when do you get the PET scan or the lumbar puncture, when are the — how do you schedule the MRIs, getting the reimbursement, understanding where the infusion centers are. So it’s a pretty high touch sell and customer relations at the start. I would say there’s an initial investment, there’ll be a second wave of investment once the CMS decision is known and then probably a third wave of investment as the capacity builds and the patient numbers increase.

Operator: Our next question comes from Tim Anderson of Wolfe Research.

Alice Nettleton: Hi. Thank you for taking our question. This is Alice Nettleton on for Tim Anderson. Just on Alzheimer’s, so we’re wondering what is Biogen’s working assumption on how the profile of Lilly’s Donanemab will look relative to LEQEMBI. Past data would suggest it would be less safe with efficacy about the same. Is that how Biogen views the most likely outcome? Thank you.

Christopher Viehbacher: Yes. Thanks for the question. I don’t think we really look at it that way. When — I think the world changed with the CLARITY study. If we went back two years ago, three years ago, a lot of still doubt amongst the neurology community, does the amyloid beta hypothesis really hold water. There’s been a huge debate within the community about whether that’s a valid target or not. CLARITY, I think, really starts to put that debate to rest. And but the studies were done over — in the case of CLARITY in an 18-month time frame. But actually, what we’re seeing is that the world has moved on. Those 18 months, yes, we would dramatically reduce plaque and we actually see that there is a benefit in terms of slower cognitive decline.

But that’s not where it’s going to end. In all likelihood, the way this is shaping up is that you’re going to have at some point a plaque clearing phase. Then what happens after you’ve cleared the plaque? If you don’t continue treating, the plaque is going to come back. So there’s going to be, in all likelihood, a maintenance phase, that’s where also the subcu formulation will be important. And then as we all know, MCI is not really early stage Alzheimer’s. By the time you have MCI, by the time you have symptoms, you probably already have a maximum load of plaque. There are probably people on this call who are accumulating plaque in their brains as we speak and they don’t know it. And by the time a certain amount of plaque has risen, then you’ve already had a certain amount of neuronal death.

And right now, we don’t know how to restore neurons. So there’s also going to be, with the advance of blood diagnostics, but also even Eisai Biogen study ahead and looking at earlier patients, as one neurologist said, we’re not looking at this any longer as a four to eight year disease, but we’re looking at this over the time frame of a 25-year period. So if I look at donanemab finite, in some ways, it will be good if their data are positive, that it further reinforces the amyloid — the beta amyloid hypothesis. And also there’s — we’ve always seen in new markets if there’s more players that those markets develop faster. But this donanemab thought process of I’m just treating to a certain amount of plaque reduction. Most neurologists I talked to don’t believe that fits anymore with the way we’re thinking about the treatment of Alzheimer’s.

So I think it will be there, but I think it’s going to be — it’s not really going to be adopted in the same way that people thought when that study was conceived. So let’s say, I think, it will be good if there’s other players in the market. But I don’t think we are too concerned about competing with donanemab.

Operator: We will now take a question from Michael Yee of Jefferies. Please go ahead.

Michael Yee: Hi. Thank you. Good morning. We had a question around your expectations post reimbursement around the LEQEMBI launch. Appreciating you can’t give too many specifics, but how should we think about that in the context of consensus modeling $40 million to $45 million, $400 million for next year? Maybe you could help right-size how things start off, whether there’s a bolus or a number of patients already in the queue and in the context of how we should be modeling the next four to six quarters? Thank you.

Christopher Viehbacher: Yes, I wish I could give you some more guidance on that. As I’d like to say, I’m pretty confident in the three to five year outlook. The next 18 months are a little more difficult to model even for us. There is an awful lot of interest. There probably will be some queuing. There is going to be a question around the — how quickly can the system flex. The way I would think about it is and the way I look at Biogen is I think Zuranolone actually is a product that can actually contribute faster to our sales growth in 2024. And I do think that one, yes, it’s a paradigm shift, but there’s a clear patient benefit and we don’t have all of the infrastructure challenges to overcome. So to me, I look to more to the impact of Zuranolone next year. And the — we’ll be able to give a lot better idea by the end of this year once we see what’s the initial take-off in the first six months once CMS issues its reimbursement.

Operator: Our next question comes from Robyn Karnauskas of Truist Securities.

Robyn Karnauskas: Hi. Thanks for taking my question and all the colors has been very helpful. So just on if there is a registry, can you just talk to if you would foresee a registry being how much of a bottleneck it might create? How might it be paid for? And so help us, when we see that decision, understand what the challenges would be or it may not be as cumbersome as some might think? Thanks.

Christopher Viehbacher: Well, there are certainly versions of a registry that are not particularly cumbersome and the devil is going to be in the detail. That’s why, again, we would hope that actually CMS reimburses this product just like any other product. When you think that diverse and underserved patients in the health care system suffer disproportionately more in Alzheimer’s, it would seem that increasing the barriers for those patients by the need for navigating a registry would be highly unfair to those patients. But we’ll wait and see. Our belief is that the data from CLARITY are extremely clear. The benefits are by no means limited to what you see in the CDR Sum of Boxes. As Priya said, when you look at those activities of daily life, which are evaluated by people who are with these patients every single day and you have half a dozen measures and each one of them individually is statistically significant that says to me that — and versus placebo, this says to me that the people who see these patients every day understand the benefit of this new medicine and treatment.

And so I think the data are compelling and we would hope that there isn’t a registry. And if there is a registry that it is minimally cumbersome for patients to act and their caregivers to navigate.

Operator: We will now take a question from Marc Goodman of SVB Securities.

Marc Goodman: Good morning. Priya, maybe you could just help us with what’s similar about these programs that were stopped? I mean, obviously, there’s a few in stroke and a few others. But what is similar there? And it was interesting, strokes in Phase III, so does that mean that we could see some other late-stage assets that get cold from the pipeline? Just philosophically, just big picture, how you’ve thought about these decisions? Thanks.

Priya Singhal: Sure. So the way we’ve thought about these decisions is really we’re looking at every program in great depth and several times over and thinking about what are the options, what are the operational and strategic and regulatory challenges, but also opportunities. And so really, it’s an integrated view of where we believe that our resources would be better applied to other programs in our portfolio currently. That is, I would say, the common denominator across all the divisions that you’re hearing from us today. We believe that we should be spending time elsewhere. Now having said that, you said the BIIB093 is in Phase III. I can’t really comment on what might be the outcome. But for now, we are really discontinuing development.

Operator: We will now take a question from Terence Flynn of Morgan Stanley.

Terence Flynn: Great. Thanks so much for taking the question. Maybe a follow-up for Chris on Zuranolone. I think during your prepared remarks, you noted that this asset is underestimated. And based on your answer to the prior question, it sounds like potentially you think there could be some upside to numbers. So should we read that as — is that the takeaway, that you think there’s upside out of your consensus estimates here for that asset? And then just any update on the commercial footprint in terms of the build and what that might ultimately look like over time? Thank you.

Christopher Viehbacher: Yes. Thanks, Marc. It is interesting, and I look at it, and I take what analysts and investors say very seriously. And — but I definitely see that, as a company, we see a much higher potential for Zuranolone than what the street has. And I’m trying to figure out why there is that gap, I haven’t really come up with a good answer other than I think the investment community has been so focused on things like rare diseases and oncology where you’ve got some very clear biomarkers, you’ve got some very precise medicine. Precision medicine is a big thing in both of those fields. And we’re back into primary care. We’re back into a disease state that is — has a lot more challenge in actually diagnosing, even as you look at different indications.

For instance, we take something like bipolar depression and major depressive disorder and general anxiety disorder and these things are often seen in the same patient. And indeed when you actually talk to psychiatrists, they’ll tell you that this is a — this is truly personalized medicine. Psychiatrist tends to be less swayed by guidelines, by what KOLs say and more about understanding the individual patient needs. So this is not what people have been used to looking at. It’s all clinical data and everything else. And so I think from a commercial model point of view, the market is having a little bit more difficulty understanding how does the physician make a decision about their patient. I can tell you is that we’ve talked to a lot of patients.

We’ve had patients into our global executive committee. We had physicians talk to our global executive committee. It is a much different approach than certainly what our company has been used to in terms of dealing with neurologists. But what is also really clear is that there is a significant unmet need. Patients cycle through therapy. They’re not adequately satisfied by those therapies. There’s an awful lot of stigma here and staying on medicine only reinforces that stigma. I’ve talked to physicians who say, we have people coming into the emergency room and we can’t help them. There are no beds. We give them an SSRI or something like that and hope that someone is going to watch them for six weeks. So the fact that you can have a medicine that responds quickly.

If you’re in a depressed phase, this is a very dark part of people’s lives. And when you hear the patient stories about how suddenly their life has changed. We had a patient who’ve been suffering on and off for almost 20 years, a mother of three children, grandmother of five children. And within days, she felt better. She’s gotten her qualification as a fitness instructor. She’s going now for a pilot license. I mean this is really transformational for so many patients. And that’s what I really go by in. Another way I look at it, Marc, is I look at when you’re recruiting salespeople. We have 27 roles. The first line manager roles in our field force that we’re looking at. We had over 4,000 applications for those roles. And these are people who are working for great companies and supporting great products.

And I remember when we were launching Aubagio and there weren’t high expectations of Aubagio. But when we built that field force, we were able to recruit a great team. And salespeople do their own diligence. They tend to want to be a part of medicines that they see as important. And I see a lot of signs where I think this is going to resonate with the patient. It is certainly resonating with the sales folks that we are recruiting. And I certainly hear it from a lot of key opinion leaders. So it’s hard to — the only thing that I see where there’s a note of caution is that it is clearly a paradigm shift and I’d like to say it’s easier to change your spouse of 20 years than it is sometimes a physician’s prescribing habits, but because physicians do rely on their experience.

But I do think there is a major unmet need here and I actually think there’s an awful lot of potential. I’m very excited about this product. I think if I just listen to patients, I always like to say if there is an unmet need and I can see a differentiation versus existing therapy, the drug will be a success.

Operator: Our next question comes from Jay Olson of Oppenheimer.

Jay Olson: Thank you for the update and congrats on all the progress. Could you talk about the ideal capital structure for Biogen? And how much incremental debt could you take on for the purpose of business development? Thanks for taking the question.

Christopher Viehbacher: Mike, do you want to take that one?

Michael McDonnell: Yes, I’ll take that one. Thank you for the question, Jay. So we ended the quarter with about $6 billion in cash. And as we mentioned, we received the payment from Samsung for roughly $830 million subsequent to the end of the quarter. So we’re approaching $7 billion of cash on hand. Our EBITDA level is roughly $3 billion. And on a gross debt basis, we’ve got roughly two turns. Obviously, net debt is close to zero, it’s actually negative if you pro forma for the Samsung payment. So there is incremental room. I think that just illustratively if you added a turn of leverage, you’d be at three times growth, you’d still be very modest net. And you add that to the cash, that puts you kind of north of or in the ZIP code of about $10 billion that you’ve got of kind of dry powder so to speak.

I wouldn’t suggest that we would add incremental debt just to add it, but for the right opportunity, the right BD opportunity, et cetera, I think we’ve got a lot of flexibility in our capital structure.

Christopher Viehbacher: We know you all have other calls to get to, so operator, can we please take one more question.

Operator: We now take a question from Colin Bristow of UBS.

Colin Bristow: Hey, good morning, and thanks for squeezing me in. And also welcome, Chuck. We’re excited to be working with you again. On subcut LEQEMBI, what does FDA specifically said is required for approval? And then can you just speak to how important the subcut formulation is to the commercial story? What proportion of patients would it allow you access to the infusion or not? And then just a sort of a subpart on the commercial part. The VHA is excluding APOE4 homozygous. Can you just speak to the risk that you see either as a labeling or commercial risk on full approval as access broadens? Thank you.

Priya Singhal: Okay. Thanks, Colin. I can start — yes, I can start with the subcutaneous formulation. So the plan is on track and Eisai has said that they would be filing by Q1 2024. Just to backup, the evaluation is being conducted in the Phase III open-label extension by a subcutaneous sub-study. And Eisai has also stated that they have discussed the requirements for proceeding with this filing and generating the data and then subsequent filing with FDA and other regulators. And they believe that the strategy currently does allow for an evaluation of PK, PD and safety, which would be required. I’ll move to the next aspect. I think that you asked was about the APOE4 homozygous. So Eisai presented some of these data at AD/PD and also made comments on this topic.

And they believe that really the data set was rather small. The number of APOE4 homozygous was quite small. They don’t believe that the overall conclusions are different in terms of CLARITY AD and confidence in the data. The other aspect here to keep in mind is that actually many of the secondary endpoints favoured LEQEMBI. So there could be a component of placebo not declining as much in this comparator group and that was one of the points that they made as well. Now with regards to the commercial view on subcutaneous, I’m going to turn it to either Chris or Mike.

Michael McDonnell: Yes. I mean I think on — go ahead, Chris.

Christopher Viehbacher: Go ahead, Mike.

Michael McDonnell: Yes. No, I was going to say on the commercial view of subcutaneous, this will be kind of ground-breaking and then we’ll have to see how that plays out over time as patients with Alzheimer’s along with their caretakers are maybe moving to more of a maintenance mode for their treatment. This could be something that could be very valuable and particularly for patients who have a distance to travel to get to an infusion center to be able to self-administer at home and something that we think could have a lot of potential. So more to come on that over time. We’ll expect to hear more about it over the next nine or so months and we think it could be an important differentiator if it comes together.

Chuck Triano: Thanks, everybody.

Christopher Viehbacher: I was just going to add, Chuck, we don’t really see that the biweekly infusion as being a limiter right now for that infusion. But it does, as Mike said, as we think about if we are able to get a maintenance indication and we are able to get blood diagnostics, the length of time that a patient will be on drug potentially will change in future and then therefore the subcu would certainly make a difference in that scenario. Back to you, Chuck.

Chuck Triano: Thanks, Chris. So thank you all for your attention this morning. You can always follow up with the Investor Relations team and this will conclude our call.

Operator: This concludes today’s call. Thank you for your participation. You may now disconnect.