Analyst Conference Call Summary

conference date: July 25, 2017 @ 5:00 AM Pacific Time
for quarter ending: June 30, 2017 (second quarter, Q2 2017)

Forward-looking statements

Overview: Record revenue, up 15% y/y excluding Bioverativ spinoff. Raised full year 2017 revenue guidance, but decreased GAAP EPS guidance. Significant Spinraza revenue ramp. But net income and EPS were down on high R&D expenses from acquired assets.

Basic data (GAAP):

Revenues were $3.08 billion, up 10% sequentially from $2.81 billion and up 7% from $2.89 billion in the year-earlier quarter.

Net income was $863 million, up 15% sequentially from $750 million but down 18% from $1.05 billion in the year-earlier quarter.

EPS (earnings per share, diluted) were $4.07, up 18% sequentially from $3.46 and down 15% from $4.79 year-earlier.

Guidance:

For the full year 2017 revenue expected between $11.5 and $11.8 billion, up mainly to faster-than-expected Spinraza ramp. R&D 18% to 19% of revenue on GAAP & non-GAAP basis. SG&A between 15% and 16% of revenue, GAAP & non-GAAP. GAAP EPS 17.05 to $17.65; non-GAAP $20.80 to $21.40.

Long term, cash flows are expected to grow significantly through at least the early 2020s, when high value asset read-outs are expected.

Conference Highlights:

“We are developing transformational therapies to address what we believe are becoming the world’s most significant unmet medical needs. Our mission is clear - the world needs a leader in neuroscience, and we aim to be that leader,” said CEO Michel Vounatsos. Biogen is making progress in its search for a new CFO. Biogen maintained its global market share in multiple sclerosis (MS).

Announced a strategy update. Essentially continue to strengthen MS franchise, accelerate Spinal Muscular Atrophy program, and "develop and expand neuroscience portfolio" including Alzheimer's program and pain programs. Also focus capital on future growth areas and streamline operations. "The unmet need in neuroscience is massive."

"In May 2017, Biogen completed an asset purchase of Remedy Pharmaceuticals’ Phase 3-ready candidate, CIRARA™ (intravenous glibencamide), now known as BIIB093. The target indication for BIIB093 is large hemispheric infarction, a severe form of ischemic stroke where brain swelling (cerebral edema) often leads to a disproportionately large share of stroke-related morbidity and mortality. In the second quarter of 2017, Biogen recorded a $120 million GAAP-only charge . . . to acquired in-process research and development expense." A Phase 3 trial could begin in 2018.

"In June 2017, Biogen completed an exclusive license agreement with Bristol-Myers Squibb for BIIB092 (formerly known as BMS-986168), an anti-tau antibody with potential in Alzheimer’s disease and progressive supranuclear palsy (PSP). Biogen recently initiated the Phase 2 study in PSP with the first patient dosed in June 2017. These events triggered an upfront payment of $300 million to Bristol-Myers Squibb as well as a $60 million milestone payment to the former stockholders of iPierian, Inc. These amounts were included in both GAAP and non-GAAP R&D expense in the second quarter of 2017." Believes this is a critically important investment.

Biogen continues actively enrolling two global Phase 3 studies for aducanumab in early Alzheimer’s disease. Enrollment should complete in 2018. Phase 1b data presented in July indicated it slowed decline in both cognitive and functional assessments.

Spinraza (Nusinersen) for spinal muscular atrophy (SMA) uptake was stronger than expected, but could slow going forward. Now treating over 600 patients. Spinraza is getting approval from U.S. medical plans, including Medicaid. Gained approval in Canada and Japan and launched in Germany. Looking at gene therapy as an additional method for SMA, and may advance a product in 2018.

"In July 2017, the European Medicines Agency (EMA) announced that it has provisionally restricted the use of ZINBRYTA (daclizumab) to adult patients with highly active relapsing disease despite a full and adequate course of treatment with at least one disease modifying therapy (DMT) or with rapidly evolving severe relapsing MS who are unsuitable for treatment with other DMTs. This follows the initiation of an EMA review of ZINBRYTA, following the report of a case of fatal fulminant liver failure, as well as four cases of serious liver injury."

Non-GAAP net income was $1.07 billion, down 5% sequentially from $1.12 billion and down 6% from $1.14 billion year-earlier. Non-GAAP EPS was $5.04, down 3% sequentially from $5.20 and down 3% from $5.21 year-earlier.

Total product revenue was $2.64 billion, up 11% sequentially from $2.38 billion and up 3% from $2.57 billion year-earlier. That excludes the Rituxan revenue and other revenue.

*unconsolidated joint business revenue, Anti-CD20 products
**spun off to Bioverativ in Q1

Cash and equivalents (including marketable securities) balance ended at $5.5 billion (20% in U.S.), down sequentially from $5.7 billion. $6.5 billion notes payable and other debt. $782 million was spent to repurchase shares.

Cost of sales was $366 million. Research and development expense was $796 million. Selling, general and administrative expense $430 million. Amortization of acquired intangible assets $118 million. Acquired in-process research and development of $100 million. Fair value adjustment (gain) of contingent consideration $21 million. Collaboration profit sharing $27 million. Total cost and expenses $1.88 billion. Leaving income from operations of $1.20 billion. Other expense $68.2 million. Income taxes $270 million.

The FDA approved Rituxan Hycela in June 2017 for treatment of adults following several blood cancers.

In May the European Commission granted full marketing authorization for Fampyra, which had received conditional approval in 2011.

Working on a Phase 2 trial design for another remyelenation agent, BIIB061.

Roche's Ocrevus for primary progressive MS was approved by the FDA in March. Biogen will receive tiered royalties. The launch will cut into Biogen product revenue, partly offset by royalties received on it.

BAN2401 is in Phase 2 for Alzheimer’s disease.

Raxatrigine (CNV1014802) is should start a Phase 3 trial for trigeminal neuralgia in 2017, and Phase 2b ready for sciatica also.

BIIB059 data should be presented soon for lupus.

Natalizumab for acute ischemic stroke is being revived for a Phase 2 trial, with different endpoints. Hopes for full enrollment this year.

See also the Biogen product pipeline. Plans to implement "a more robust product acquisition strategy" including both early and late stage assets.

Biogen agreed to value-based contracts with 4 health plans, adjusting prices to outcomes.

Biogen aspires to becoming "the fastest growing large cap biotech." Believes can do this even if aducanumab does not get commercial approval.

Q&A:

Clinical risk in business development, particularly Alzheimer's and stroke? Orphan space? We want a more hedged strategy. We are looking closely at clinical risk, to diversify it. Spinraza does offer a good template for orphan diseases. We also want to spread risk over different patient population.

Capital allocation, are you shifting more to growth, less to repurchases? Dividends? Our priority is to develop the neuroscience portfolio. We will be maximize shareholder returns, including returning capital to shareholders. [implied no dividend is being thought about]

Aducanumab interim look possibility? We don't comment on interim analyses.

Global MS patients up 4% y/y, is that a long term rate? In 2016 we saw the U.S. market contract. Believes will be low-single digit growth rate in U.S., high-single growth rate in Europe. Tysabri has a well-documented benefit to risk ratio. Switching to Ocravis is not an easy switch, some patients to disease rebound.

SMA gene therapy timeline? Experts indicate SMA may be more common than previously thought. Patient's families are demanding treatment. We are excited about the Penn gene therapy collaboration and pay attention to the competition. We think we can be in the clinic next year.

SMA non-treatable patient numbers, effects? We anticipate the EAP patients in Europe will eventually become commercial patients. The patients who can't get the drug include those who have had spinal surgery, mostly type 2 childhood onset patients. We are working with surgeons on how to get drugs to those patients, who deserve to be treated. We don't have a lot of data in adult onset patients, so we are getting questions from payers. 60% of the type 2 patients have had spinal surgery.

Spinraza is dosed using intrathecal injection. That is why patients with spinal fusions are a problem to treat, not because they are untreatable.

The streamlining of operations planned should be neutral for operating costs, but allow SG&A expense to be moved to R&D.

Over time early-onset SMA population will grow.

Option on biosimilars? Exercising the option makes sense. It is a great value proposition. We currently intend to opt in, the opportunity expires in 2018.

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