Analyst Conference Call Summary

biotechnology

conference date: November 8, 2023 @ 5:00 AM Pacific Time
for quarter ending: September 30, 2023 (third quarter, Q3 2023)

Forward-looking statements

Overview: Returned to y/y revenue growth, but earnings, particularly GAAP earnings, sank due to cost of the Reata acquisition.

Basic data (GAAP):

Revenues were $2.53 billion, up 3% sequentially from $2.46 billion and up 1% from $2.51 billion in the year-earlier quarter.

Net income negative $68 million, down sequentially from $593 million and down from $1.13 billion in the year-earlier quarter.

EPS (earnings per share, diluted) were negative $0.47, down sequentially from $4.02 and down from $7.84 year-earlier.

Guidance:

Decreased FY 2023 guidance to reflect Reata acquisition to non-GAAP EPS of $14.50 to $15.00.

Conference Highlights:

CEO Christopher A. Viehbacher said: "We believe we have the key elements in place to position Biogen for long-term sustainable growth. Biogen has made significant progress on the business priorities outlined at the beginning of the year. During the third quarter alone, we received FDA approval for Leqembi and Zurzuvae, announced the closing of the Reata transaction, and initiated our $1 billion Fit for Growth cost savings program. As we look ahead, the focus remains on execution. We aim to further our leadership in Alzheimer's disease by both driving the Leqembi launch and advancing development of our tau-directed ASO, where we have the potential to establish another foothold in the fight against Alzheimer's disease. In addition to potential revenue and EPS growth from new launches, Fit for Growth is expected to significantly strengthen our bottom line growth." Aims to return to sustainable growth. MS business continues to decline due to competition.

The FDA granted full approval for Leqembi (lecanemab) for Alzheimer's on July 6, 2023, under the Accelerated Approval pathway. Partnered with Eisai. Full phase 3 results were published on November 29, 2022 at the Alzheimer's Congress. Reimbursement will be available under Medicare, per CMS. Follows dozens of drugs failures in AD. Will change how physicians practice, but hard to predict rate of adoption. Rival product has a different mechanism of action, clinical study designs were different. Other companies will now invest more in their research. Commercial insurer response has been good. Now has a trial for Leqembi in preclinical AD, AHEAD 3-045. Also working on a subcutaneous formulation, maintenance dosing OLE study. Analysis of Phase 3 trial showed higher response from low-Tau patients [slide 11]. Received Japan approval in Q3 2023, expects in EU and China in Q1 2024.

Leqembi launch requires building care networks, which did not exist at the time of approval. So the launch, and sales, will be gradual. First patients have now been infused. Now at 800 patients. Seeing good patient demand and physician intent to treat. Making progress on subcutaneous form of the drug. Also generating data supporting extended dosing. In the future Leqembi 50/50/ collaboration with Eisai will show revenue separate from expenses.

Biogen and Sage's Zurzuvae [zuranolone] for the treatment of major postpartum depression (PPD) was approved by the FDA in early August 2023. But its used for major depressive disorder (MDD) was turned down. It was given a favorable DEA rating in November, 2023, allowing for sales to begin in December 2023, with main launch in Q1 2024.

The increase in GAAP R&D and SG&A expense in Q3 2023, as compared to the third quarter of 2022, of approximately $187 million and $225 million, respectively, was primarily due to acquisition related charges incurred in connection with the acquisition of Reata. The other significant charges were $76 million for restructuring, a $35 million idle capacity charge, and charges related to the Leqembi collaboration. Other expense was $300 million, primarily driven by net unrealized loss on strategic equity investments of $302 million. Partially offset by an income tax benefit.

In the first half of 2024 expects Skyclarys and Qalsody decisions in the EU.

Skyclarys (omaveloxolone) for Friedrich's ataxia launch is underway, 860 patients to date. Estimated sales of $43 million in Q3 were not included in Biogen financial results (because of timing of acquisition of Reata).

In Q4 plans to use about $1.4 billion of cash in relation to Reata acquisition. Will have less interest income in 2024 due to cash spend on Reata.

In June 2023 the last patient was enrolled in the Phase 3 study of dapirolizumab pegol in systemic lupus erythematous (SLE). Top line results of the study expected mid-year 2024. Biogen and UCB anticipate that a second Phase 3 study would be needed to support a regulatory filing in SLE.

Biogen currently has four more biosimilar programs in development. Biogen is considering strategic options for its biosimilar business.

Non-GAAP net income was $635 million, up 7% sequentially from $585 million and down 8% from $691 million year-earlier. Non-GAAP EPS diluted was $4.36, up 8% sequentially from $4.02 and down 9% from $4.77 year-earlier.

Total product revenue was $1.81 billion, down 2% sequentially from $1.84 billion and down 8% from $1.96 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 $2.29 billion, down sequentially from $7.28 billion due to the Reata acquisition. $7.29 billion debt. $0 million was spent to repurchase shares. $592 million cash flow from operations. $74 million cap ex. $518 million free cash flow. $2.0 billion remains available in the share repurchase program, but no shares were repurchased in Q3 2023.

GAAP Cost of sales was $660 million. R&D expense was $736 million. SG&A expense $788 million. Amortization of acquired intangible assets $61 million. Collaboration profit sharing income $51 million. Restructuring charges $76 million. Other expense $300 million. Total cost and expenses $2.67 billion. Leaving income from operations of negative $141 million. Income tax benefit $68 million.

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

Q&A selective summary:

Skyclarys sales? Spinraza sales about 1/3 US, 1/3 EU, 1/3 other. Expect Skyclarys to be similar, after approvals. But for genetic reasons there is little market in Asia. We believe the EU approval is likely. Working on the pediatric setting, patients can be diagnosed at 5 years old, many are 8 to 10.

Leqembi maintenance strategy, CMS? Eisai has said would be every 4 weeks, to file in 1H 2024. Preparing data for potential filing.

Leqembi subcutaneous? Encouraged by interim data. Patient population was treatment niave, 72 patients. Looking for PK, safety. Showed bioequivalence with intravenous. Area under curve was about 11% higher, and plaque reduction improved 14%. Have prior regulatory discussions, and will have more meetings to discuss next steps. Helps for BLA by Q1 2024. Also looking at subcutaeneous maintenance dosing, likely 2025.

Duration of therapy on Leqembi? While plaque re-accumulates slowly, the biomarkers accumulate as soon as patients are off drug. Patients who were on placebo, then started, never caught up, but maintained the difference, though they did stabilize. This indicates continuing drug is going to be important. So we are doing an open-label study on this. Alzheimer's used to be thought of as a 4 to 8 year disease. Now thinking in 25 year terms, as patients start to accumulate plaques long before they show symptoms. Even with plaques removed there appears to be benefit to extending therapy.

AHEAD 345? Looking to see if earlier patients can have disease course altered by Leqembi. Because disease seems to only start after amyloid buildup leads to tau formation.

Leqembi breadth of prescribing? MAC coverage? About a dozen MACs, it takes 60 to 90 days to get coverage, so most by year end. Some medical centers are already prescibing, some major medical centers are still working on their protocols. We are seeing the number of presciptions accelerate, it takes 4 to 6 weeks to go on drug. Neurology appointments can be hard to get. But our process is not as complex as a CAR-T approach.

PET scans, MRIs? Uneven. Varies by center. The patients tended to not be in neurology practices, and the neurologists were already busy. So they may have to staff up. There is caution around ARIA. Infusion capacity is not usually a problem. PET scans are adequate. So no one thing, early triage would be most helpful.

Skyclarys EMA review? Looked at regulatory correspondence during due diligence. Nothing has changed our view of an outcome in early 2024.

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