Analyst Conference Call Summary

biotechnology

conference date: May 3, 2022 @ 5:00 AM Pacific Time
for quarter ending: March 31, 2022 (first quarter, Q1 2022)

Forward-looking statements

Overview: Aduhelm sadness; revenue and profit declines continued.

Basic data (GAAP):

Revenues were $2.53 billion, down 7% sequentially from $2.73 billion and down 6% from $2.69 billion in the year-earlier quarter.

Net income $304 million, down 17% sequentially from $368 million and down 26% from $410 million in the year-earlier quarter.

EPS (earnings per share, diluted) were $2.06, down 18% sequentially from $2.50 and down 23% from $2.69 year-earlier.

Guidance:

Reaffirmed full year 2022 revenue between $9.7 and $10.0 billion with non-GAAP EPS $14.25 to $16.00

Conference Highlights:

CEO Michel Vounatsos said: "We are disappointed by the recent Medicare coverage decision for Aduhelm. We executed on our core business objectives in the first quarter, and we will now look forward and execute on a set of near-term operational priorities, which we believe will drive renewed growth and value creation over time. We have a strong balance sheet, enabling us to advance a broad pipeline that includes lecanemab in Alzheimer's disease and zuranolone in depression, while also pursuing new internal and external growth opportunities." In Q2 cost of sales includes approximately $275 million of charges resulting from Aduhelm inventory write-offs and approximately $45 million of idle capacity charges. Eisai's share of these charges ($160 million) is reflected in collaboration profit sharing. $38 million was charged to resturucting due to Aduhelm.

Mr. Vounatsos will be stepping down as CEO when a successor has been found. The commercial organization for Aduhelm will be largely dismantled. Annual savings could reach $1 billion.

Aduhelm (aducanumab) was not approved for rembursement by Medicare/Medicaid except when administered in a clinical trial, in April 2022. It was approved by the FDA in Q2 2021 under its accelerated approval program, for Alzheimer's. The price was reduced to $28,200 in Q4 2022. Revenue in Q4 was $1 million. A final NCD decision is expected in April 2022, but the preliminary decision was negative. In July 2022 the FDA updated the label to emphasize the early disease stage emphasized in the clinical trials. The long-term Embark trial enrolled its final patient in July 2021. The new trial will start enrolling patients in May 2022 and take about four years; will aim at a higher percentage of black and hispanic patients than prior trials. In Q4 2021 additional data and analysis was presented supporting the drug's safety and effectiveness. The redosing trial and the Phase 4 trial will continue.

Lecanemab for Alzheimer's data readout is expected in fall 2022; partnered with Eisai. In Q1 2022 Eisai and Biogen presented the latest findings on lecanemab at the International Conference on Alzheimer's and Parkinson's Diseases.

One positive is the ramp of Vumerity revenue, which is still launching in nations outside the U.S. Believes the company can return to growth over time as new products launch. Will use some cash for incremental revenue growth opportunities. But prioritizing investments, so may terminate, sell,or partner some programs.

Biogen completed the sale its stake in Samsung Biologics for up to $2.3 billion in April 2022, with $1 billion received at closing. Biogen will continue to record some revenue and costs under the agreement.

Biogen currently has four more biosimilar programs in development and is preparing to launch Byooviz, referencing Lucentis, in the U.S. in the coming months. But y/y revenue was down due to pricing pressures.

In Q1 2022 Biogen and Xbrane Biopharma entered into a commercialization and license agreement to develop, manufacture, and commercialize Xcimzane, a preclinical monoclonal antibody that is a proposed biosimilar referencing Cimzia (certolizumab pegol). The primary indication is for rheumatoid arthritis in adults as well as axial spondylarthrosis, psoriasis and Crohn's disease. Under the terms of the agreement, Biogen will gain exclusive global regulatory, manufacturing, and commercial rights to Xcimzane.

10 programs are either in Phase 3 or being filed for regulatory approval.

Biogen and Sage started the rolling NDA submission to the FDA for zuranolone for the treatment of major depressive disorder (MDD) in late April 2022. An additional filing for postpartum depression (PPD) is anticipated in 2023. In October 2021 Sage and Biogen had announced new data from the LANDSCAPE and NEST clinical studies. Zuranolone for major depressive disorder reported positive Phase 3 data in Q4 2021 from the open-label Shoreline study.

Tecfidera revenue continues to be impacted by generic entries in the U.S. and by pricing pressure outside the U.S.

Byooviz will enter the U.S. market in 2022. In Q3 2021 Byooviz (ranibizumab-nuna), a biosimilar referencing Lucentis (ranibizumab), was approved in the U.S., E.U., and U.K. In Q2 2021 BAT 1806, a biosimilar referencing Actemra reported positive Phase 3 data.

Non-GAAP net income was $535 million, up 7% sequentially from $500 million but down 34% from $813 million year-earlier. Non-GAAP EPS was $3.62, down up 7% sequentially from $3.39 and down 32% from $5.34 year-earlier.

Total product revenue was $2.07 billion, down 5% sequentially from $2.19 billion and down 6% from $2.21 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 $4.75 billion, up sequentially from $4.70 billion. $7.28 billion debt. $0 million was spent to repurchase shares. $162 million cash flow from operations. $58 million cap ex. $104 million free cash flow.

GAAP Cost of sales was $754 million. R&D expense was $552 million. SG&A expense $635 million. Amortization of acquired intangible assets $67 million. Collaboration profit sharing loss $117 million. Gain on fair value remeasurement of contingent consideration $7 million.Restructuring charges $38 million. Total cost and expenses $1.92 billion. Leaving income from operations of $611 million. Other expense $263 million. Income tax $126 million. Equity income, $3 million. Net loss attributable to noncontrolling interests, $85 million.

In Q4 2021 Biogen exercised its option to obtain from Ionis a worldwide, license to develop and commercialize BIIB115, an investigational antisense oligonucleotide in development for SMA that may have the potential for extended dosing intervals as compared to Spinraza. Biogen paid Ionis a $60 million one-time upfront payment in the quarter.

See also the Biogen product pipeline. The entire pipeline includes 27 clinical programs.

Q&A summary:

What is the actual cost savings? The cost savings tied to Aduhelm were about $500 million, but some of that may be reinvested in growth initiatives. Currency headwinds had a major impact on guidance.

Lecanemab data seems to indicate that stopping prematurely can cause a reversal in biomarkers, so timing of dosing is important.

Priority of business development? It is a priority. We continue to look to supplement our pipeline. But we will continue share buybacks.

What does Aduhelm commercialization reversal say about expectations for Lecanemab? We expect results in Q3. We do not think it makes sense to carry such a large team in place to the time of a possible FDA approval. It says nothing about our expectations of lecanemab results or possible approval.

We plan to stay within neuroscience, but we are open to adjacencies. For instance, the work we are already doing in lupus.

Does not expect a change in the Accelerated Approval pathway in the U.S., including for Alzheimer's therapies. Filing for lecanemab for Phase 2 study, with Phase 3 possibly qualifying for full approval. The data needs to be evaluated as it emerges. We remain committed to Alzheimer's disease. We are investing in earlier programs with different approaches, and we have yet unannounced pathways.

Willingness to take on debt for business development? Could take on more debt, though we have quite a bit of cash on hand.

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