Analyst Conference Call Summary

biotechnology

conference date: January 29, 2019 @ 5:00 AM Pacific Time
for quarter ending: December 31, 2018 (fourth quarter, Q4 2018)

Forward-looking statements

Overview: Full year revenue was up 10% from 2017, led by Spinraza growth and Ocrevus royalties. Slower growth predicted for 2019. Biosimilars continue to ramp, Tecfidera is leveling off.

Basic data (GAAP):

Revenues were $3.53 billion, up 3% sequentially from $3.44 billion and up 7% from $3.31 billion in the year-earlier quarter.

Net income was $0.95 billion, down 34% sequentially from $1.44 billion and way up from negative $0.30 billion in the year-earlier quarter. Q4 2017 was negatively impacted by tax reforms.

EPS (earnings per share, diluted) were $4.73, down 24% sequentially from $7.15 and way up from negative $1.40 year-earlier.

Guidance:

For full year 2019 Biogen expects revenue between $13.6 and $13.8 billion. R&D expense and SG&A expense are each expected to be about 16% to 17% of revenue, both GAAP and non-GAAP. Non-GAAP tax rate 18% to 19%. GAAP diluted EPS $26.65 to $27.65. Non-GAAP diluted EPS $28.00 to $29.00.

Conference Highlights:

CEO Michel Vounatsos said: "The positive data for BIIB067 in SOD1 ALS highlight the potential to leverage ground breaking science to address previously untreatable diseases and exemplifies our strategy to build depth in neuromuscular diseases and movement disorders. Over the next 12-18 months, we expect to have several important data readouts across clinical programs in multiple sclerosis, progressive supranuclear palsy, and Alzheimer's disease. . . As always, we remain focused on allocating capital efficiently and appropriately with the objective of maximizing returns for our shareholders over the long term. . . We are very excited about our upcoming data readouts."

Spinraza is now available in over 40 nations. U.S. sales were $236 million, ex-U.S. $234 million. Full year revenue was $1.7 billion. Number of patients is increasing, but net pricing is decreasing in certain markets. Expects mid-to-high teen revenue growth in 2019.

MS revenue was stable. Number of patients was stable. Channel inventories increased by about $155 million in the quarter. Expects to see some continued discounting pressure in 2019, particularly in Q1 and Q4.

Biosimilar revenue is growing rapidly, mainly in Europe. Three main anti-TNF biosimilars are now available in Europe. Imraldi (compare Humira) launch went well.

Cash generation was strong. R&D expense was high due to $35 million for the Ionis collaboration and $17 million for the C4 Therapeutics collaboration. GAAP taxes were higher due to a $136 million charge related to tax reform.

Over the next 12 to 18 months Biogen expects to expand its pipeline in MS and neuroimmunology, dementia, neuromuscular disorders, movement disorders, and ophthalmology. In 2018 Biogen added 6 clinical programs to its neuroscience pipeline.

Non-GAAP net income was $1.400 billion, down 6% sequentially from $1.49 billion and up 25% from $1.12 billion year-earlier. Non-GAAP EPS was $6.99, down 6% sequentially from $7.40 and up 33% from $5.26 year-earlier.

For the full year 2018 revenue was $13.45 billion, up 10% from 2017 revenue of $12.27 billion. GAAP EPS was $21.58 up from $11.92 in 2017. Non-GAAP EPS was $26.20. Cash flow from operations was $6.2 billion.

Total product revenue was $2.83 billion, up 2% sequentially from $2.78 billion and up 4% from $2.71 billion year-earlier. That excludes the Rituxan revenue, royalties and other revenue.

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

Cash and equivalents (including marketable securities) balance ended at $4.9 billion, down sequentially from $5.67 billion. $5.9 billion notes payable. $1.4 billion was spent to repurchase shares. $1.9 billion cash flow from operations.

Cost of sales was $489 million. Research and development expense was $612 million. Selling, general and administrative expense $591 million. Amortization of acquired intangible assets $254 million. Fair value adjustment gain of contingent consideration $79 million. Collaboration profit sharing $56 million. Total cost and expenses $2.08 billion. Leaving income from operations of $1.44 billion. Other expense $29 million. Income taxes $470 million. Net loss attributable to noncontrolling interests, $2 million.

In January 2019 Biogen and Skyhawk Therapeutics entered into a collaboration and research and development services agreement for Skyhawk's SkySTAR technology platform for small molecule RNA splicing modifiers for MS, spinal muscular atrophy (SMA), and other neurological diseases. Biogen paid Skyhawk an upfront payment of $74 million and may also pay additional milestone payments as well as potential royalties. Biogen will record a research and development expense of approximately $35 million in Q1 2019.

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.

In 2018 Biogen added 6 clinical programs to its neuroscience pipeline, including BIIB078 (IONIS-C9Rx) for C9ORF72-associated ALS, BIIB110 (ActRIIA/B ligand trap) for muscle enhancement in diseases such as SMA, an option to acquire TMS-007 for acute ischemic stroke, BIIB104 (AMPA receptor potentiator) for cognitive impairment associated with schizophrenia (CIAS), BIIB074 (vixotrigine) for small fiber neuropathy, and BIIB095 for neuropathic pain.

In December 2018 Biogen enrolled the first patient in a global Phase 3b study evaluating extended interval dosing (EID) for natalizumab (Tysabri) compared to standard interval dosing (SID) in patients with relapsing MS.

BAN2401 for Alzheimer's Phase 2 data released in October was encouraging but not definitive.

Aducanumab for Alzheimer's data was presented in October from the Phase 1b study, and was consistent with previous analyses. The Phase 3 study continues, with enrollment complete and data readouts expected in early 2020. Stated ways aducanumab is differentiated from other (failed) a-beta therapies. Data from both analyses showed a reduction in amyloid plaque levels in a dose- and time-dependent manner, as measured by positron emission tomography (PET). In addition, analyses of exploratory clinical endpoints, Clinical Dementia Rating Sum of Boxes (CDR-SB) and the Mini-Mental State Examination (MMSE), suggested a continued slowing of clinical decline over 36 months and 48 months. Also will start an even-earlier stage of Alzheimer's trial.

BIIB 76, 92, and 80 for Alzheimer's targeting Tau are all advancing 076 should report Phase 1 results in early 2020. 092 completed Phase 2 in PSP with results expected in 2H 2019.

In December 2018 Biogen reported positive Phase 1 data from an interim analysis of a study (n=70) that achieved proof-of-concept for BIIB067 treatment for ALS with SOD1 mutations. At the highest dose tested (n=10), treatment with BIIB067 over a three month period resulted in a statistically significant lowering of SOD1 protein levels in the cerebrospinal fluid (p=0.002), slowing of clinical decline as measured by the ALS Functional Rating Scale-Revised, slowing of decline in respiratory function as measured by slow vital capacity, and slowing of decline in muscle strength as measured by hand held dynamometry, all compared to placebo (n=12). Biogen paid Ionis a $35 million one-time upfront payment to exercise its option. An additional cohort to this study will be added with the potential to support registration.

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

In December 2018 Biogen dosed the first patient in the Phase 2b study of BIIB104, an AMPA receptor potentiator, in patients with CIAS.

BIIB054 for Parkinson's in Phase 2.

BIIB093 started Phase 3 for cerebral edema associated with large hemispheric infarction.

BIIB098 (diroximel fumarate) data for MS was positive and filing with FDA should be before year end, by partner Alkermes. Could see U.S. approval in early 2020. If approved would be branded as Vumerity.

BIIB074 Phase 2 for small fiber neuropathy is enrolling. BIIB074 (vixotrigine) should start for trigeminal neuralgia Phase 3 initiation now planned before end of 2019.

BIIB104 is being developed for neurocognitive disorders, including Phase 2b for cognitive impairment from schizophrenia.

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:

2019 guidance slower growth, affect on capital allocation strategy? We have a strong engine for growth and important readouts coming. The priority is to enhance our platform with M&A, but for the long term, not to try to fill in for 2019.

New aducanumab trial? Investigators want it. We have increased confidence in aducanumab. Also the FDA recently put out guidance for how you might get approval for early Alzheimer's disease. We believe one day the standard of care will be to treat with amyloid lowering drugs as early as possible. The trial will go a long ways towards informing that.

Will there be an interim analysis or futility analysis for aducanumab? Our policy continues to be to not talk about interim analyses.

Pricing of Spinraza? New reimbursement countries expected? We expect Spinraza revenue to resume growth in 2019. We do expect to enter the U.K. in 2019 and expand in a number of markets. We recently got approval in Canada. We hope for reimbursement in S. Korea and self-pay in China.

BIIB067 data timeline? To be presented at an undetermined science meeting. The Phase 1 study was mainly for safety, but showed efficacy. It is encouraging across the platform for this spectrum of diseases.

Tax rate lowered for 2019? In 2017 rate dropped, but affected by inventory returns in 2018. It depends on a lot of factors, so may not apply beyond 2019.

We recognize revenue on sales into the channel, so inventory is beyond our control.

Cladrabine impact on U.S. MS market? It is oral and given every 6 months, but had some safety concerns.

Spinraza infant penetration? There are difficulties starting infants, but physicians are getting better at it. Short term the adult market has more potential.

Uptake of new SMA drug introduction? Novartis launch is expected mid-year, for infants, which a minority of the market. We do think the therapies could be complementary, but the time window for infants is small. So we expect Spinraza to remain the standard of care.

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