Analyst Conference Call Summary

biotechnology

Biogen Inc.
BIIB

conference date: October 21, 2020 @ 5:00 AM Pacific Time
for quarter ending: September 30, 2020 (third quarter, Q3 2020)


Forward-looking statements

Overview: Launch of generic competitors to Tecfidera resulted in a y/y revenue decrease. Profits plunged due to impact of Denali collaboration agreement expenses.

Basic data (GAAP):

Revenues were $3.38 billion, down 8% sequentially from $3.68 billion and down 6% from $3.60 billion in the year-earlier quarter.

Net income $0.70 billion, down 55% sequentially from $1.54 billion and down 51% from $1.44 billion in the year-earlier quarter.

EPS (earnings per share, diluted) were $4.46, down 53% sequentially from $9.59 and down 47% from $8.39 year-earlier.

Guidance:

Lowered full year 2020 guidance. Revenue now $13.2 to $13.4 billion. GAAP diluted EPS $25.50 to $26.50. Non-GAAP EPS $32.50 to $33.50. Non-GAAP EPS range excludes the upfront payments for Sangamo and Denali collaborations Q2 and Q3 2020, respectively.

Conference Highlights:

CEO Michel Vounatsos said: "In the third quarter, Biogen continued to execute on its strategy and delivered solid performance, although we began to face the launch of multiple generics of Tecfidera in the U.S. We are excited about the prospect of aducanumab as a short- and long-term value creation opportunity. We have continued to allocate capital to create the opportunity for long-term shareholder value, including business development with our new collaboration in Parkinson's disease." Tecfidera is clearly a near-term challenge, with 6 generics now on the market and discounts running near 90%.

MS and Spinraza revenue decreased y/y, but biosimilars increased. Spinraza revenue in the U.S. was impacted by competition and the pandemic. GAAP R&D expenses in the third quarter of 2020 included a $601 million charge related to Biogen's collaboration with Denali Therapeutics, which Biogen entered into in the third quarter of 2020 ($560 million upfront and a $41 million premium paid on Denali common stock purchased).

Biogen completed filing the BLA for aducanumab on July 8, 2020. An FDA Advisory Committee meeting is scheduled for November 6. Applied in EU in October and Japan. Making preparations for expanded manufacturing. In March 2020 the first patient was dosed in the aducanumab re-dosing study, EMBARK, a global re-dosing clinical study designed to evaluate aducanumab in eligible Alzheimer's disease patients who were actively enrolled in prior aducanumab studies. Data indicates aducanumab may slow the decline of patients. Started talking to payers about pricing the drug if it is approved. Preparing to file in EU and Japan. Also expanding the Alzheimer's program with other potential therapies.

Six more data readouts are expected by the end of 2021, including 3 Phase 3 and 3 Phase 2. The Phase 3 readouts include tofersen for SOD1 ALS and BIIB111 for choroideremia.

In October 2020 Biogen entered into a collaboration with Scribe Therapeutics to develop and commercialize CRISPR-based therapies for amyotrophic lateral sclerosis (ALS). Scribe will receive a $15 million upfront payment and may be eligible to receive up to $400 million in milestones as well as tiered high single digit to sub-teen royalties,

The EMA in October 2020 accepted the MAA SB11, a proposed biosimilar referencing Lucentis (ranibizumab), an anti-VEGF (vascular endothelial growth factor), for retinal vascular disorders.

In August 2020 Biogen and Denali announced a collaboration to co-develop and cocommercialize Denali's small molecule inhibitors of leucine-rich repeat kinase 2 (LRRK2) in Parkinson's disease. Biogen also received rights to opt into two programs and a right of first negotiation for two additional programs, in each case for neurodegenerative diseases leveraging Denali's Transport Vehicle technology platform to cross the blood-brain barrier. Denali received a $560 million upfront payment and an equity investment of $465 million and may be eligible to receive up to $1.125 billion in potential milestone payments, profit sharing, and royalties.

In October 2020 Biogen announced that the Phase 2 AFFINITY study of opicinumab (anti-LINGO) in MS did not meet its primary or secondary endpoints and that Biogen has discontinued development. However, will continue to research remylinization.

Non-GAAP net income was $1.39 billion, down 12% sequentially from $1.58 billion and down 18% from $1.69 billion year-earlier. Non-GAAP EPS was $8.84, down 14% sequentially from $10.26 and down 4% from $9.17 year-earlier.

Total product revenue was $3.38 billion, down nA% sequentially from $na billion and down 6% from $3.60 billion year-earlier. That excludes the Rituxan revenue, royalties and other revenue.

Therapy
Revenue in Millions
Q3 2020
Q2 2020
Q3 2019
y/y %
Tecfidera $953 $1,182 $1,122 -15%
Vumerity 15 9 0 na
Avonex + Plegridy 474 481 530 -11%
Tysabri 516 432 484 7%
Fampyra 27 23 24 10%
Spinraza 495 495 547 -10%
Benepali 124 106 116 7%
Imraldi 56 45 49 14%
Flixabi 27 21 18 49%
Fumaderm 3 3 4 -16%
Rituxan*+Gazyva royalty 288 270 408 -29%
Ocrevus royalty 272 208 188 45%
Other** 126 408 110 15%

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

Cash and equivalents (including marketable securities) balance ended at $4.59 billion, up sequentially from $5.25 billion. $7.43 billion notes payable. $1.25 billion was spent to repurchase shares, completing the authorized program, but an additional $5 billion was authorized. $1.18 billion cash flow from operations. $84 million cap ex. $1.10 billion free cash flow.

Cost of sales was $449 million. Research and development expense was $1.14 billion. Selling, general and administrative expense $573 million. Amortization of acquired intangible assets $83 million. Collaboration profit sharing $73 million.Gain on fair value remeasurement of contingent consideration $29.0 million. Total cost and expenses $2.29 billion. Leaving income from operations of $ billion. Other expense $129 million. Income taxes $241 million. Equity in loss of investee, $13 million. Income attributable to noncontrolling interests $2 million.

In September 2020 first patient dosed in Phase 3 AHEAD 3-45 clinical study of BAN2401, an anti-amyloid beta antibody, in individuals with preclinical Alzheimer's disease, collaborating with Eisai.

In August 2020 the first patient was dosed in the Phase 3 program for dapirolizumab pegol in patients with active systemic lupus erythematosus despite being treated by standard of care therapies. This is in collaboration with UCB.

An IND was submitted and accepted for BIIB105 for sporadic ALS in April 2020.

BIIB059 Phase 2 results for CLE (cutaneous lupus erythematosus) produced positive results in Q2 2020. Plans Phase 3 study to launch in H1 2020. Plans Phase 3 dapirolizumab pegol for systemic lupus erythematosus trial in Q3 2020.

In Q2 2020 Biogen executed a licensing agreement with Massachusetts Eye and Ear to develop treatments for inherited retinal degeneration due to PRPF31 gene mutations.

BIIB074 Phase 2 for small fiber neuropathy is enrolling. BIIB074 (vixotrigine)for trigeminal neuralgia Phase 3 initiation now planned.

Data from the Phase 1/2 studyof BIIB112 for XLRP ophthalmology study were positive, reported in Q2 2020. Now in Phase 2 study.

In Q2 2020 the collaboration between Biogen and Sangamo to develop gene regulation therapies for Alzheimer's disease, Parkinson's disease, neuromuscular disease, and other neurological diseases became effective. The companies will use Sangamos proprietary zinc finger protein technology delivered via adeno-associated virus to modulate the expression of key genes involved in neurological diseases. Upon closing Biogen paid Sangamo $225 million for Sangamo stock, approximately 24 million shares at $9.21 per share. Biogen will pay a $125 million license fee. In addition, Biogen may pay Sangamo up to $2.37 billion in milestone payments as well as tiered high single digit to sub-teen royalties.

See also the Biogen product pipeline. The entire pipeline includes 27 clinical programs. 10 mid to late stage trial readouts are expected by the end of 2020.

Q&A summary:

Advisory Committee, any new data? We have done a lot of analysis in cooperation with the FDA.

EU filing, any differences from US? We just filed, expecting to hear back shortly.

Expenses, why no restructuring given Tecfidera? We are always looking at efficiency. We took out $400 million from our infrastructure, but are preparing for adicanumab, and the MS environment is highly competitive. We need to keep at the Vumerity launch. SG&A is about 16% of revenue. Tax rate was high in the quarter because of Tecfidera deferred taxes.

Advisory Committee, subgroups? Will share all the data with the Committee, including potential subgroups.

Other national agencies want to meet re aducanumab.

Why the share repurchase new authorization? We expect to continue making business development investments and returning cash to shareholders. Cash flow will remain significant.

Could the FDA act early? They have had the data since last June, and the advisory committee was earlier than expected. We will be ready to launch even if the approval comes early. We are working on pricing with payers.

Spinraza color? Patients are up 21% y/y, but royalties were down 10%. Partly due to less loading doses for fewer new patients. Some patients missed doses due to pandemic. Some patient growth is coming from lower-priced countries. Then there is competition, including Evrysdi. We saw 200 patients switch to Evrysdi, but we expect Spinraza to remain the foundational therapy.

We are confident about our long term growth and consistent in our cost discipline. We will continue with business development activities.

Competitive landscape in Parkinson's? Roche antibody showed some efficacy. We have our own antibody, which is more targetted. We have an antisense program (Ionis) and the Denali small molecule. GBA gene is also a potential target, we have preclinical programs for that and could get a Denali molecule.

Japan feedback on aducanumab? We are optimistic, we are not as advanced in discussions, we have not actually filed in Japan yet.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. These are my personal notes, which I am sharing with the investment community, not financial advice.

Copyright 2020 William P. Meyers