Analyst Conference Call Summary

conference date: July 24, 2018 @ 5:00 AM Pacific Time
for quarter ending: June 30, 2018 (second quarter, Q2 2018)

Forward-looking statements

Overview: continued strong revenue growth y/y. Completed Phase 3 enrollment in aducanumab for Alzheimer's disesase. GAAP profits hit by items; non-GAAP EPS up 15% y/y. Increased guidance.

Basic data (GAAP):

Revenues were $3.36 billion, up 7% sequentially from $3.13 billion and up 9% from $3.13 billion in the year-earlier quarter.

Net income was $867 million, down 26% sequentially from $1.17 billion and about flat from $863 million in the year-earlier quarter.

EPS (earnings per share, diluted) were $4.18, down 25% sequentially from $5.54 and up 3% from $4.07 year-earlier.

Guidance:

Revenue for 2018 estimate increased to $13.0 to $13.2 billion. Diluted GAAP EPS $21.80 to $22.40, a decrease. Non-GAAP diluted EPS $24.90 to $25.50, an increase. Difference between GAAP and non-GAAP change is acquisition costs.

Conference Highlights:

CEO Michel Vounatsos said: "We continued to execute on our strategy to be the leader in neuroscience, as exemplified by our progress in our growth areas of Alzheimer’s disease, neuromuscular disease and acute neurology. Overall, revenues grew nine percent to a record $3.4 billion in the second quarter. The number of patients treated with our MS therapies globally remained relatively stable compared to last year. We saw an increase of over 20 percent in the number of adult SPINRAZA patients in the U.S. versus last quarter, as we work to increase access and adoption in older patients. Outside the U.S., the pace of reimbursement for SPINRAZA across multiple geographies supported meaningful revenue growth, and we look forward to introducing the therapy to new markets worldwide."

"In addition, we have made advancements in Alzheimer’s disease, with the completed enrollment in the aducanumab Phase 3 studies and encouraging topline data for BAN2401. We also continued to expand our neuroscience pipeline with new assets targeting stroke and muscle enhancement."

GAAP net income and EPS were impacted by $589 million in expenses releated to the new collaboration agreement with Ionis, the acquisition of BIIB104, the option payment to Neurimmune SubOne for aducanumab, and the new option agreement with TMS Co.

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

Biogen announced today acquiring "ALG-801 (Phase 1a) and ALG-802 (preclinical) from AliveGen, Inc. ALG-801 (now known as BIIB110) and ALG-802 represent novel ways of targeting the myostatin pathway, which is one of the most thoroughly studied approaches for muscle enhancement." Up front payment is $27.5 million.

"In June 2018 Biogen announced that it entered into an exclusive option agreement with TMS to acquire TMS-007 and backup compounds. TMS-007 is believed to restore blood flow following acute stroke, with an extended treatment window versus current standard of care, and is currently being evaluated in a Phase 2 study in Japan." Upfront payment is $4 million.

Non-GAAP net income was $1.20 billion, down 6% sequentially from $1.28 billion and up 12% from $1.07 billion year-earlier. Non-GAAP EPS was $5.04, down 4% sequentially from $6.05 and up 15% from $5.04 year-earlier. "In the second quarter of 2018 Non-GAAP net income and diluted EPS were impacted by $314 million and $1.52, net of tax, respectively, related to the new collaboration agreement with Ionis and the option agreement with TMS."

Total product revenue was $2.76 billion, up 10% sequentially from $2.52 billion and up 4.5% from $2.64 billion year-earlier. That excludes the Rituxan revenue and other revenue.

*unconsolidated joint business revenue, Anti-CD20 products
** mainly contract manufacturing

Cash and equivalents (including marketable securities) balance ended at $4.4 billion, down sequentially from $7.1 billion. $5.9 billion notes payable. $2.75 billion was spent to repurchase shares; $ billion remains authorized. $1.1 billion cash flow from operations.

Cost of sales was $421 million. Research and development expense was $981 million. Selling, general and administrative expense $516 million. Amortization of acquired intangible assets $107 million. Acquired in-process research and development of $75 million. Fair value adjustment gain of contingent consideration $2 million. Collaboration profit sharing $39 million. Total cost and expenses $2.14 billion. Leaving income from operations of $1.21 billion. Other expense $35 million. Income taxes $264 million. Net loss attributable to noncontrolling interests, $48 million.

"In March 2018 Biogen announced an agreement to acquire from Pfizer Inc. BIIB104 (formerly known as PF-04958242), and the transaction closed in Q2. 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 June Biogen exercised its option to acquire more shares of Samsung BioLogics, its biosimilar partner. At closing Biogen will own 49.9%.

BAN2401 for Alzheimer's missed its primary endpoint in Phase 2, but hit key secondary endpoints, plaque reduction and a composite score. The primary endpoint had been designed for rapid advance to Phase 3. A more detailed presentation will be made tomorrow. Biogen will discuss the path forward with the FDA.

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.

In June 2018 Biogen and Eisai announced that elenbecestat, the oral beta amyloid cleaving enzyme inhibitor demonstrated a statistically significant difference in amyloid-beta levels in the brain measured by amyloid-PET

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:

BAN2401 key elements of read through, effect on anumcanumab? They both bind tightly to soluble and insoluble beta. They do not bind to monomers. They bind to very similar forms of amyloid beta. But they have differing mechanisms of action. They both clear amyloid plaques and both seem to slow the progression of cognitive decline. We think this is the most promissing approach for Alheaimer’s.

Missing of primary endpoint by BAN2401, hitting secondary, possible FDA acceptance? Our next step is to talk to the FDA, it is too early to speculate as to whether we can file with the Phase 2 data.

EU pricing pressure mentioned in guidance? In U.S. we are now comparing to when we had Ocrivus in the U.S. Volumes have been growing well outside the U.S. But there are pricing pressures in some nations in Europe. It is nothing new.

SMA gene therapy program? We believe we have a path forward and are working hard to get it off clinical hold.

Spinraza decline of new patient starts? We made progress Q1 to Q2. We believe adults is a large untreated patient pool. We had not been focused on adults previously. We continue to expect to see growth.

Business development plans? Still looking to complete our portfolio, but remain very disciplined.

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