Analyst Conference Call Summary

conference date: April 24, 2018 @ 5:30 AM Pacific Time
for quarter ending: March 31, 2018 (first quarter, Q1 2018)

Forward-looking statements

Overview: Usual Q1 seasonal slump, good y/y revenue gains.

Basic data (GAAP):

Revenues were $3.13 billion, down 5% sequentially from $3.31 billion and up 11% from $2.81 billion in the year-earlier quarter.

Net income was $1.17 billion, up sequentially from negative $297 million and up 56% from $0.75 billion in the year-earlier quarter.

EPS (earnings per share, diluted) were $5.54, up sequentially from negative $1.40 and up 60% from $3.46 year-earlier.

Guidance:

not updated

Conference Highlights:

CEO Michel Vounatsos said: "“The fundamentals and resilience of our multiple sclerosis business remained strong, while we experienced anticipated seasonality at the beginning of the year. I believe there is significant opportunity for the future growth of Spinraza worldwide as we position Biogen for long-term leadership in spinal muscular atrophy.
As pioneers in neuroscience, we continued to advance and expand our portfolio of potential breakthrough treatments for areas of high unmet need. We have added a new Phase 2 asset in our emerging growth area of neuropsychiatry, and we meaningfully enhanced our collaboration with Ionis to develop a new pipeline of gene-based therapies for neurological diseases.”

Revenue grew 15% y/y on a like-to-like, no hemophilia revenue basis.

On April 20 Biogen announced a major collaboration deal with Ionis to develop RNA interference based neurological therapies.

Non-GAAP net income was $1.28 billion, up 14% sequentially from $1.12 billion and up 14% from $1.12 billion year-earlier. Non-GAAP EPS was $6.05, up 15% sequentially from $5.26 and up 16% from $5.20 year-earlier.

Total product revenue was $2.52 billion, down 7% sequentially from $2.71 billion and up 6% from $2.81 billion year-earlier. That excludes the Rituxan revenue and other revenue.

*unconsolidated joint business revenue, Anti-CD20 products
**spun off to Bioverativ in Q1 2017
*** mainly contract manufacturing

Cash and equivalents (including marketable securities) balance ended at $7.1 billion, up sequentially from $6.75 billion. $5.93 billion notes payable. $250 million was spent to repurchase shares; $2.75 billion remains authorized. $1.5 billion cash flow from operations. 85% of cash is now held in the U.S.

Cost of sales was $446.0 million. Research and development expense was $496.7 million. Selling, general and administrative expense $501.3 million. Amortization of acquired intangible assets $103.9 million. Acquired in-process research and development of $10.0 million. Fair value adjustment gain of contingent consideration $5.6 million. Collaboration profit sharing $42.5 million. Total cost and expenses $ billion. Leaving income from operations of $1.53 billion. Other expense $41.0 million. Income taxes $322.5 million. Net loss attributable to noncontrolling interests, $1.7 million.

Zinbryta was withdrawn from the market in March. Will not go forward with the program.

Natalizumab for acute ischemic stroke did not reach its Phase 2b goals, and no further indications will be pursued, but that will not affect its approved use in MS.

"In January 2018, Biogen acquired the exclusive worldwide rights to develop and commercialize Karyopharm Therapeutics Inc.’s Phase 1 ready investigational oral compound KPT-350 for the treatment of certain neurological and neurodegenerative conditions, primarily amyotrophic lateral sclerosis (ALS). KPT-350 is a novel therapeutic candidate that works by inhibiting XPO1, with the goal of reducing inflammation and neurotoxicity, along with increasing neuroprotective responses. Biogen will pay Karyopharm a one-time upfront payment of $10 million and up to an additional $207 million in milestones, plus tiered royalty payments on potential sales of KPT-350."

Biogen continues actively enrolling two global Phase 3 studies for aducanumab in early Alzheimer’s disease. Enrollment should complete in 2018. New data presented in March showed a 69% reduction in amyloid plaque from baseline. BAN2401 final analysis is due in Q3 2018.

"In March 2018 Biogen announced an agreement to acquire from Pfizer Inc. BIIB104 (formerly known as PF-04958242), and the transaction closed today. BIIB104 is a first-in-class, Phase 2b ready AMPA receptor potentiator for cognitive impairment associated with schizophrenia (CIAS), representing the Company’s first program in neuropsychiatry. BIIB104 has previously demonstrated an acceptable safety profile and treatment effect trends across key cognitive domains in Phase 1b clinical studies. The purchase included an upfront payment of $75 million with up to $515 million in additional development and commercialization milestone payments, as well as tiered royalties in the low to mid-teen percentages." This transaction has closed.

In April partner Applied Genetic Technologies dosed the first patient in a Phase 1/2 trial of a gene therapy for treating x-linked retinitis pigmentosa.

An agreement with AbbVie allows the launch of biosimilar Imraldi (Humira) in Europe in October 2018.

Opicinumab for relapsing MS continued a phase 2b trial, Affinity.

Natalizumab for drug resistant focal epilepsy started a Phase 2 study in October. For acute ischemic stroke the Phase 2b trial was completed in August, with data expected in 2018.

BG00011 for idiopathic pulmonary fibrosis had positive Phase 2a results, and will go to phase 2b in 2018.

BIIB054 for early Parkinson's disease dosed its first Phase 2 patient in January. Phase 1 data was positive.

BIIB095 started a Phase 1 trial for neuropathic pain in March.

BIIB098 data for MS was positive and filing with FDA should be before year end, by partner Alkermes.

BIIB074 should start for trigeminal neuralgia Phase 3 should start in 2018. Phase 2 for lumbosacral radiculopathy is fully enrolled. Phase 2 for small fiber neuropathy initiated.

A intramuscular formulation of Plegridy is being developed.

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

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

Q&A:

Aducanumab variability estimation used to change Alzheimer's sample size? Our blinded sample estimate for variability was changed. So we increased size as a whole to preserve 90% power.

Moderation of new Spinraza starts in the U.S. and international adoption? We don't see the start numbers as a trend line. We are working to capture the rest of the SMA adult population, after ramping through the known cases earlier. We believe there are more than 5000 patients to go. We do not believe revenue in the U.S. will flatten out indefinitely. International growth should continue to be relatively rapid. Discontinuations are extremely low.

We are well capitalized and generate a lot of cash. We are adding assets that are closer to market ready, but we can add midstage assets and return capital to shareholders through share buybacks.

Pain assets? BIIB074 is in trials for indications that have different types of pain, so a lot depends on the specific pain state. The strongest clinical evidence so far is in trigeminal neuralgia.

Pace on stock repurchases? "Based on the stock price today we believe it is very undervalued." Would look for a pickup in the repurchase pace.

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