Biogen Inc. (NASDAQ:BIIB) Q1 2024 Earnings Call Transcript

Biogen Inc. (NASDAQ:BIIB) Q1 2024 Earnings Call Transcript April 24, 2024

Biogen Inc. misses on earnings expectations. Reported EPS is $3.3 EPS, expectations were $3.45. BIIB isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Biogen First Quarter 2024 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. [Operator Instructions] 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: Thanks, Jennifer. Good morning, good afternoon, good evening, everyone, and welcome to Biogen’s first quarter 2024 earnings call. Before we begin, I’ll remind you that the earnings release and related financial tables, including our GAAP financial measures with a reconciliation to the GAAP and non-GAAP financial measures that we will discuss today are in the Investors section of biogen.com. 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 that non-GAAP financial results better represent the ongoing economics of our business and reflect how we manage the business internally. We have also posted the slides on our website that will be used during this call.

I’d point out that we will be making forward-looking statements, which are based on our 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’m joined by our President and Chief Executive Officer, Chris Viehbacher; our Head and President of North-America, Alisha Alaimo; our CFO, Mike McDonnell; and Dr. Priya Singhal, Head of Development is with us and will be available for the Q&A session. Chris, Alisha, and Mike will each make some opening comments and then we’ll move to the Q&A session. And to allow us to get through as many questions as possible, we kindly ask that you limit yourself to one question.

With that out of the way, I’ll now turn the call over to Chris.

Chris Viehbacher: Thank you, Chuck. Good morning, everybody. Well, it is certainly great to be able to announce earnings per share growth in our first quarter. This is the first time in several years that the underlying business performance of Biogen has allowed us to actually demonstrate earnings per share growth, and that’s a major achievement. We’ve clearly still got a lot of work to do, but I think it feels like we’re turning the corner in the company. And with that, I’d like to actually take the opportunity to thank my Biogen colleagues. We have instituted an awful lot of change within the company and I’d like to thank them for their commitment, passion, and patience throughout this process. But I think you’re seeing some of that change that has occurred now in the numbers.

We have tried to bring a lot more focus and discipline to really putting our resources behind those things that do good and drive value. And one of the things that you may not see is that, there is an awful lot of reinvestment going on. One of my early bosses in my career once told me, you can’t save your way to prosperity in this business, and that is absolutely true. And that’s not really what we set out to do. The Fit for Growth project, which is, as you can see from the numbers, on track to achieve its $1 billion in gross savings and $800 million in net cost savings and by the way, [$100] (ph) million of increased cash flow as well by the end of 2025. But what we really tried to do was redesign the organization. We have been so focused as a business for decades on our multiple sclerosis franchise, and here we are launching four first-in-class new medicines and we really needed to make sure we’re supporting those launches.

And in fact, despite the cost reductions and margin improvements that Mike is going to go into in more detail, but behind that, there are hundreds of millions of dollars being invested in new launches. And while our overall expense in research and development has decreased, this focus has actually enabled us to increase the investment in those assets where we have the most conviction. So, this is much more than a cost-savings exercise. This has been a redesign and a change in our culture to a degree. So, let’s look at some of these new launches. And obviously, the one that everybody is most interested in is LEQEMBI and if we can move to that slide. You can look at this in a number of different layers. Obviously, first, we’re seeing really good quarter-on-quarter trends.

As you’ve seen, the number of patients on drug has increased to 2.5 fold compared to where we finished the fourth-quarter. Our in-market revenue almost tripled in Q1 versus Q4 of last year, and that’s obviously important. But the thing that really is important to me as I look at this is not so much just that. I’ve been in this business for 3.5 decades. I’ve lost count of how many launches I’ve seen, but this is an extraordinarily difficult launch, really because the amount of change that physicians are facing with this is really profound. And as I go around to hospitals and talk to doctors and talk to those who are seeing other doctors, it really becomes evident that there are an awful lot of challenges to getting that — even that first patient on treatment.

We were at one hospital, it was going to take — it took them three months to get approval just to hire a nurse to help navigate the system. At another major medical center, they’re having to develop a five-year business plan, just to be able to access the infusion beds. And when you look at some of the uncertainty around PET scan reimbursement, and although CMS had clarified that and a lot of the MACs have pulled it through, there was still a lot of difficulty getting that clarity all the way through the channel. You know why I’m really encouraged by when I look at these numbers is, when — although there are a lot of challenges, it’s a lot of time investment for physicians and I think a lot of those physicians to their credit are investing that time and not necessarily getting reimbursed for that, but they’re getting it done.

They’re overcoming these challenges and barriers. And that is, I think, what is so important. They see the need when they look at patients who are accomplished people, who are loved by their families, and seeing this dreaded disease pull the patient away from that on a day-by-day basis. So, I do think we are seeing an awful lot of momentum here. And again, I think there’s an awful lot of credit to the neurologists and to these centers to overcoming these challenges and I think that is going to allow us to continue to see quarter-on-quarter growth. It may not be completely linear, and Alisha will go into more detail on that, but it takes time to get these protocols in-place and even when you get the first patient, there has been a tendency that let’s have a handful of patients so we get comfortable with the system.

But then, once they’ve done all that, then, we’re starting to see volume pull through. And one of the interesting things about this launch is that, generally, we look at revenue as a surrogate for demand. And here there’s — that linkage is not quite so clear because it has taken this upfront time before you see revenue pull through. And I think that’s one of the other things we’re now seeing in this first quarter is that, we’re actually seeing a little bit more of that linkage between demand and revenue. And behind all of this, once those processes are in place, and once physicians are ready, there is clearly an underlying demand behind that. So, I think that has given us a lot of confidence to now invest more, and we have a 30% expansion in our US field force plan.

But I would also say, this is a launch that really didn’t start until 1st of September. And even then, you could argue we weren’t fully in the mode of being able to launch because the PET scan reimbursement hadn’t been cleared. But our US teams for both Eisai and Biogen have done an awful lot of work to look at the data from the first seven months of the launch. And really, we’re now looking at redeploying some resources here and there as we see what’s important and what’s not. I think the teams are really working well together. And we have a number of new elements of our promotional mix that will start to come into play as we progress through the second quarter. So, from a Biogen point of view, I think it’s too early to put out any forecast.

We’re going to be looking at those month-over-month new patient starts and the increase in revenue. But I would certainly say I’m extremely encouraged by the progress that has occurred. And if I could switch gears to another key growth driver, which is SKYCLARYS, and Alisha, again, will go into more detail and I think also just show investors how we’re progressing versus other analogs because the rare disease market doesn’t behave so typically as in other markets. There is always a catch-up population in rare disease. And so, it takes a while for that catch-up population to work through the system and then have a look at what’s the underlying demand. Remember that these are not patients sitting in waiting rooms and that there is a huge amount of work that goes into finding patients.

And I think that is actually one of Biogen’s strengths. That’s I think what gives me the confidence to continue to invest more because I do think there is a know-how within Biogen and that’s one of the reasons we want to build out a rare disease franchise. But we’ve got 1,100 patients now on therapy in the US. That’s a really significant number. But I’m also really encouraged by the launch in Europe. We’ve already got — and remember, this drug was only approved in the — at the end of January and yet we already have 300 patients on treatment. Now, you all know Europe. We have to go country-by-country to get reimbursement and we have early access programs, some of those we can charge revenue for, some of them we can’t, but we have already submitted reimbursement dossiers in five countries in the US.

So I think Europe will increasingly add to the revenue. It’s probably more of a 2025 story than a 2024. But I think if I’m looking at the acceptance and the uptake, then, that launch is also off to a successful start. And we know that there are an awful lot of patients in Latin America and we’ve already submitted in Brazil, for example, submitting in Argentina. And I think that actually is going to be a major benefit and opportunity for us as well. Remember, there are no patients in Asia because this is a genetic disease that really affects people of European descent. And in fact, it was quite interesting. I was talking to a key opinion leader in Germany who is actually done genetic studies. And you basically just follow where the explorers went and that’s where you’re going to find the patients.

So I think with that, let’s dive in a little bit deeper and I’ll turn it over to Alisha.

Alisha Alaimo: Thank you, Chris. Good morning to everyone that’s able to join the call today. I’m Alisha Alaimo. And as Chuck shared, I lead our business in North America. This is a really unique period in Biogen’s history with multiple first-in-class drug launches in the US, which gives us an opportunity to drive our return to growth. And for our team, it’s also meaningful to support more people living with Alzheimer’s, Friedreich’s ataxia, and postpartum depression. We thought it might be helpful to provide a perspective on the market dynamics of the launches and share how we’re seeking a tailored approach to help provide patients with access to our therapies. Let me begin with the Alzheimer’s market. As Chris mentioned, we are seeing many major health systems across the country take a deliberate staged and phased approach, meaning, they are setting up their pathways to get patients started with diagnosis, treatment and monitoring.

We believe we are now seeing a dynamic where some IDNs are turning the page and they are focusing on expanding and extending their model. In Q1, we saw several IDNs across regions scale their patient volume. Among our priority 100 IDNs, units more than tripled in quarter one compared to quarter four, which contributed to the overall estimated patients on therapy increasing approximately 2.5 times in quarter one versus quarter four. We believe this acceleration in new patients really began to emerge at the end of the quarter. For example, more than 20% of new patients since launch were added in March. Today, among our 100 priority IDNs, more than 80% have approved LEQEMBI through their P&T process and nearly 85% of those IDNs with approval have placed an order.

Chris also mentioned that we’re seeing more physicians gain experience with LEQEMBI. We saw the number of unique prescribers in quarter one double compared to quarter four. We believe that we’re still in the early phases of unlocking the potential to treat a high volume of patients at the priority IDNs, and I thought it might be helpful to share some examples of these dynamics at the site level. There is one large health system in the Midwest that added LEQEMBI to its formulary in July of last year. Six months later, entering Q1, this system had ordered only 300 units. However, by the end of March, they had ordered 2,700 units. Similar to the example I just shared, there is also a health system in the Southeast that added LEQEMBI to its formulary in August of 2023.

Five months later, entering Q1, this system ordered about 560 units. By the end of Q1, this system ordered more than 1,750 units to treat their patients. For context, a local neurologist network in that same region ordered 3,000 units through the same time period, perhaps because they’ve been able to scale their processes to treat more patients. However, we believe this well-known Southeast IDN is planning to move beyond their flagship side of care to treat at multiple locations, which is another example of the expand and extend trend at the IDNs. We believe many systems just now appear to be completing the staging phase, and we think the recent trends observed support our continued belief that LEQEMBI represents a significant commercial opportunity over the mid to longer term.

With access and infrastructure progressing and patient volume accelerating, we believe this is also the right time to expand the field force. Biogen leaders are working to hire a customer-facing field team, which will join Eisai. Simultaneously, to activate the patient community, Biogen and Eisai have launched new direct-to-patient and caregiver omnichannel marketing campaigns. These digital programs and point-of-care resources are focused on the already diagnosed patients, who we believe are under the care of a neurologist. With these promising signals emerging, we look-forward to providing more updates in the future. Now moving to SKYCLARYS. We believe we’re driving strong performance with the launch as we continue to exceed market penetration rates of most rare disease launch analogs.

As of April 19, we now have over 1,100 patients on therapy. With an estimated 4,500 addressable Friedreich’s ataxia patients in the US, we have achieved 24% market penetration, which exceeds our own strong SPINRAZA launch. As is typical with rare disease launches, we believe we are now moving beyond the catch-up population, to reach additional patients who previously received a diagnosis of, or are suspected to have Friedreich’s Ataxia. Though patient numbers may be uneven, we anticipate adding patients each month. Last quarter, we shared how we’ve integrated some of our sophisticated rare disease capabilities to drive improvements in access, logistics, and patient support. Notably, our market access team continued to make progress by securing favorable policies in quarter one.

Today, nearly 80% of all US pharmacy lives now have SKYCLARYS reimbursement. These patient support and access efforts are critical to help patients start therapy as soon as possible, and remain on treatment for the long term. With a meaningful foundation of patients on therapy, we are focusing on two key areas in this next phase of our launch. First, educating community neurologists and PCPs about Friedreich’s ataxia and SKYCLARYS, and second, engaging additional appropriate patients. I’ll begin with our focus on HCPs. Remember with Friedreich’s ataxia, in addition to patients being concentrated at the top centers of excellence, we believe they are also being treated in the community. To support these physicians, we’ve expanded our field footprint and we are using AI to analyze data to help reach the HCPs who may have untreated patients, with insights into the relevant sites of care and when patients last engaged with their physician, we believe we can help more patients even sooner.

And with genetic testing, we anticipate patients can confirm a potential diagnosis and determine if SKYCLARYS is a treatment option. As far as our patient activation focus, we are encouraged by real-world experiences that patients are sharing on social media as, in our experience, these stories can help other diagnosed patients. Many of these stories about the impact of SKYCLARYS include reports of slowing of disease progression and in some cases, even an improvement in their symptoms long term. In addition to these organic stories, we anticipate launching our SKYCLARYS social media campaign soon. So, we believe we’re off to a strong start, but we know there are more people living with Friedreich’s ataxia that we can help, and we look forward to supporting them, which now brings me to ZURZUVAE.

As Chris mentioned, we are encouraged by the performance of the launch to date, and we think we are seeing several positive trends with providers, patient experience, and reimbursement. First, let me begin with providers. Across multiple physician types, we believe many providers are demonstrating an urgency to treat. Notably, OB-GYNs led overall prescribing in quarter one, which we believe is encouraging as they are often the first to see PPD patients. Furthermore, breadth of adoption has continued to grow. In March, nearly double the number of HCPs prescribed ZURZUVAE compared to just January. We’ve seen that some early prescribers require only a few calls before they treat. Keep in mind that ZURZUVAE is a scheduled product available through a specialty pharmacy.

While we believe psychiatrists are generally familiar with working with specialty pharmacy, this could be a new process for many OB-GYNs. We’re working to educate these providers on the steps required, so that they can support their appropriate patients. Second, some HCPs have early experience with ZURZUVAE, have shared that some of their patients reported significant improvement in depressive symptoms within days of starting treatment. Several patients are sharing their personal 14-day treatment experiences on platforms like TikTok, and we believe their courage to tell their story will help educate other women living with postpartum depression. Third, we believe we’re making good progress with government in commercial access. Many payers already have policies in place, the majority of which have been favorable, while some others continue to cover ZURZUVAE, even without formal policies in place.

Two of the three national pharmacy benefit managers are providing coverage for ZURZUVAE without overly burdensome restrictions. We are in active discussions with the third national PBM as we await their decision. And while Medicaid tends to take longer, almost half of the states, including several of the largest, accelerated reviews into quarter one, which we believe is unusual for a process that can typically take-up to a year after FDA approval. We are encouraged that approximately two-thirds of Medicaid lives with published policies appear to have minimal access restrictions. We anticipate the remaining states will review coverage throughout 2024, and we will continue to support their reviews as much as possible. Before handing it over to Mike, I want to underscore that we have an important responsibility to help people living with Alzheimer’s, Friedreich’s ataxia, and postpartum depression.

And we are working with urgency to help these patient communities. We believe we’re making significant progress in that mission, and we look forward to continuing to share updates with you. With that, I’d like now to pass it over to Mike.

Mike McDonnell: Thank you, Alisha, and hello to everyone. I’d like to start with a high-level overview of our financial profile, and how we are seeing this progress in the context of our Fit for Growth program. We maintain a sharp focus on improving profitability as we endeavor to return the company to not just EPS growth, but revenue growth as well. Please note that any financial comparisons that I make are versus the first quarter of 2023. Regarding our top line, our four recent launches contributed revenue in the first quarter, which more than offset the 4% decline in our MS business. And as we noted during our previous earnings call and at a recent webcast investor conference, we expect that this year’s revenue will be skewed more towards the second half of the year, and we expect this to be due to both the timing of shipments for SPINRAZA outside the US, as well as the expected growth profiles for our recently launched products.

On gross margin, we saw improvement of 5 percentage points in the quarter as our revenue mix has shifted. This is due to increasing high-margin product revenue replacing lower-margin contract manufacturing revenue. We also had $45 million of idle capacity charges in the first quarter of 2023, and none in the first quarter of 2024. Our R&D prioritization and Fit for Growth initiatives had a clear impact on our non-GAAP R&D and SG&A expenses, which we refer to as core OpEx during the quarter, and that resulted in a 13% decrease year-over-year. These savings contributed to meaningful growth of our non-GAAP operating income of 24% year-over-year. Our operating margin was 31% in the quarter as compared to 23% in the first quarter of 2023. And while these are encouraging improvements so far, we believe there is still more work that can be done to continue to improve these metrics.

Now, a bit more color on revenue dynamics during the first quarter. Total revenue was $2.3 billion, which was a decrease of 7% at actual and constant-currency. Our MS franchise revenue declined approximately 4% driven by competition and the usual channel seasonality that we see in the first quarter. Within MS, VUMERITY revenue grew 18% and benefited from global patient growth as well as some favorable channel dynamics during the first quarter. Regarding TECFIDERA in the EU, we have now seen most generics exit the market, which drove ex-US growth of 5% for TECFIDERA this quarter. We continue to believe we are entitled to market protection in the EU until February of 2025. And now, a quick double-click on our rare disease revenue for the quarter.

SKYCLARYS delivered $78 million of revenue, including approximately $5 million in Europe, where we have launches in several countries underway. For SPINRAZA in the US, revenue was up 1% in the quarter, and we remain encouraged by the resilience here. SPINRAZA revenue outside the US declined 35%. The majority of this year-over-year decline was due to shipment timing in certain emerging markets. We continue to generally see stable patient numbers globally, and we would expect the shipping dynamic outside the US to largely normalize throughout the remainder of 2024. We also saw some modest negative impacts from competition and foreign exchange in the quarter. For the full year 2024, we expect global SPINRAZA revenue to decline by a low-single-digit percentage.

ZURZUVAE delivered $12 million of revenue, which we believe is inclusive of some channel stocking in anticipation of increasing demand, which is common for any new launch. And lastly, contract manufacturing revenue was notably lower year-over-year, and as we reflected in our guidance for the full year, we continue to expect contribution from this line to be significantly lower than last year, due to completing a number of batch commitments in 2023. First quarter non-GAAP cost of sales was 22% of total revenue, and that’s an improvement of 5 percentage points. As I previously mentioned, this improvement was driven by a more favorable product mix, as revenue from new product launches replaced lower margin contract manufacturing revenue, and it also was related to having lower idle capacity charges.

We did not have any in the first quarter of 2024. First quarter non-GAAP R&D expense decreased $124 million, which was driven primarily by savings achieved from Fit for Growth, where we remain on track to achieve cost savings of $1 billion gross and $8 million (sic – $800 million) net of investment by the end of 2025. We also saw savings as a result of our R&D portfolio prioritization, which has had a meaningful impact as we discontinued some programs and have focused our spend on areas we believe have a higher probability of success. Non-GAAP SG&A expense decreased approximately $33 million in the first quarter, and this was primarily due to $50 million of G&A-related cost reductions, which were realized in 2024 in connection with our Fit for Growth program, and that was offset by an increase in operational spending on sales and marketing activities in support of the LEQEMBI and SKYCLARYS launches.

I will also note that the prior year included $31 million related to the termination of a co-promote agreement for our MS project — products in Japan. All of this together contributed to non-GAAP operating income growing 24%, with non-GAAP operating margin now above 30% and improving and non-GAAP EPS growth of 8%. Next, a brief update on our balance sheet. We ended the quarter with approximately $6.5 billion of debt, $1.1 billion in cash and marketable securities, and net debt of roughly $5.5 billion. As of March 31, 2024, the $6.5 billion of total debt included $250 million of the $1 billion 2023 term loan, which was put in place at the time of the Reata acquisition. As of March 31, 2024, we had repaid $750 million of this $1 billion facility.

The remaining $250 million is expected to be repaid during the second quarter of this year, so this quarter, earlier than our original expectation, which was by the end of this year. I’d note that this cash and marketable securities figure does not include a $437 million payment from Samsung, which we received earlier this month. We continued to generate strong free cash flow during the first quarter with approximately $507 million of free cash flow. So overall, our balance sheet remains in a strong position, with increasing capacity to invest in growth initiatives. And regarding our strategic review of the biosimilars business, at this point, we have not received an acceptable offer from a third-party. Our process remains ongoing and we will remain disciplined as we continue to explore all options including retaining the business.

Next, I’d like to discuss our full year 2024 guidance ranges and assumptions. We are reaffirming our expectation of full-year 2024 non-GAAP diluted earnings per share of between $15 and $16, which reflects expected growth of approximately 5% at the midpoint of the range as compared to 2023. All of the previous assumptions to our guidance, including those you see on this slide, remain unchanged. I’d like to remind that we have potential R&D success milestone or opt-in payments associated with the upcoming clinical data readouts, and we have made an allowance for some of these potential payments in our guidance. Of course, whether or not they are paid will be dependent on the data and our resulting decisions. And finally, we just announced the completion of a sale of one of our two priority review vouchers for $103 million.

At this point, we expect to earmark these proceeds for business investment, or to support business development opportunities as they arise. And in closing, we remain committed to our number one goal of returning Biogen to sustainable top and bottom-line growth, and creating long-term value for our shareholders. We will now open up the call for questions.

Chuck Triano: Thanks, Mike. Jennifer, can we go to questions?

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Eric Schmidt with Cantor Fitzgerald.

Eric Schmidt: Oh, hi. Thanks so much for all the updates and for taking my question. I guess on LEQEMBI and maybe for [Priya] (ph), we had a couple of updates in the last month or so, the EMA delay on the CHMP recommendation. And also, I know this is your partner’s doing, but Eisai announced that they couldn’t submit for the subcu approval until they finished the immunogenicity study. I was hoping you could just update us on timelines for both of those initiatives going forward? Thank you.

Priya Singhal: Yes. Thanks, Eric. So maybe I can just start off by saying that we are working with Eisai to really provide patients with the optionality of a subcutaneous formulation. Our approach is entirely data driven. So we were very encouraged to see the bioequivalence we met last year and we shared that at CTAD. This was the most important milestone. Thereafter, we’ve engaged with the FDA. And currently, just to characterize how we are approaching this, we’ve split our strategy for subcutaneous formulation. First and foremost, we are working to submit a rolling submission for subcutaneous autoinjector for maintenance. This we’re going to do at earliest. Eisai has already submitted a fast track application. We’re awaiting that.

And as soon as we get it, we will make the submission, while we continue to generate the data for the three-month immunogenicity that the FDA has required. Second, because our exposure with subcutaneous formulation was higher than the IV formulation, we believe it’s in the interest of patients to optimize dose, and that will lead to more convenience. So, we are optimizing this dose and that is something that is already ongoing and is currently ongoing this year. In terms of timelines, if we get the fast track for subcutaneous maintenance, we will file immediately for rolling review, and that we expect would be in this year even if we don’t get the fast track because we have completed the three-month immunogenicity data by Q4. Second, for the subcutaneous induction therapy, we expect that we would file by the first quarter of 2026.

That is what Eisai has already communicated in their investor comments early March. I’d also like to remind us that we completed our intravenous maintenance filing by Q1 2024 as we [indiscernible]. Thank you.

Chuck Triano: Thank you, operator. Next question, please.

Operator: We’ll go next to Paul Matteis with Stifel.

Paul Matteis: Good morning. Thank you for taking my question. I was wondering if we could get your updated perspective on business development as it relates to capacity, therapeutic area, stage of development, or commercial? And just in the context of this, how the kind of uncertain — promising, but uncertain trajectory of lecanemab influences your appetite to execute on something now versus maybe wait a bit until 2025? Thank you.

Chris Viehbacher: Thanks, Paul. I think this year, we’re going to be focused on business development to bring in some new assets, both into early-stage research and development. We have always called ourselves a neuroscience company, but the reality of neuroscience is that, this is a high-risk area. We don’t always understand the underlying disease biology, the diseases progress slowly, that leads you to some very long and expensive trials. You can’t often do a proof-of-concept study in Phase 2. And so, while we remain committed to neuroscience, my personal view is that I think that is to — that is not diversified enough for a company of our size. And so, already last year, we signaled that we’d like to go into some adjacencies in rare disease.

I think we actually have a tremendous commercial capability in rare disease. There are special commercial requirements, the need sometimes to support diagnosis, all of the hurdles with payers that have to be overcome and of course, finding the patients. And there are an awful lot of tools that I think we have to be able to do that. And then immunology, we’ve been an immunology company since the get-go since some — MS is really an autoimmune disease. So, I think we’ll use the opportunity with licensing collaborations to expand that. I think where our balance sheet is, if something really extraordinary came along, I suppose we look at it, but I don’t think where we sit right now, we’d be thinking about doing anything this year on an acquisition front, not certainly of any size.

But Mike, maybe you can talk to the balance sheet capability.

Mike McDonnell: Yes. So, Paul, I would just comment that our balance sheet is in a very good spot. If you look at our net debt position at the end of the first-quarter, and then you pro forma that for the Samsung payment and the paydown that we’ll make in the second quarter on the term loan, it’s about $5 billion of net debt. We generate about $3 billion of EBITDA. So, it’s only about a — somewhere between 1.5 turns and 2 turns of leverage. So, we certainly could add another turn of leverage for something that we liked, at least temporarily, and we generate a couple of billion dollars of free cash flow per year. So, I think about it in the context of 2024 as maybe a $4 billion to $5 billion of capacity sort of number for things that we might be really interested in. And then, if you were looking at something more Reata-like, that’s probably a little more logical, capacity wise in 2025 or beyond.

Chuck Triano: Thanks, Mike and Chris. Can we take the next question, please?

Operator: Yes. We’ll go next to Salveen Richter with Goldman Sachs.

Salveen Richter: Good morning. Thanks for taking my question. For SKYCLARYS, could you speak to the 2024 outlook and any bolus dynamics that has impacted this? And specifically, you’ve talked being 24% US market penetration. How are you thinking about peak penetration in the US and then the expectations for pace of uptake in Europe and net pricing there? Thank you.

Chris Viehbacher: Alisha, you want to take US and I can follow up with Europe?