Analyst Conference Call Summary

conference date: January 25, 2018 @ 5:00 AM Pacific Time
for quarter ending: December 31, 2017 (fourth quarter, Q4 2017)

Forward-looking statements

Overview: Continued strong revenue growth. Tax hit from law change impacts GAAP profits.

Basic data (GAAP):

Revenues were $3.31 billion, up 7% sequentially from $3.08 billion and up 15% from $2.87 billion in the year-earlier quarter, excluding the Bioverativ spinoff. Including the Bioverativ revenue year-earlier, growth was 7% y/y.

Net income was negative $297 million, down sequentially from $1.23 billion and down from $0.65 billion in the year-earlier quarter.

EPS (earnings per share, diluted) were negative $1.40, down sequentially from $5.79 and down from $2.99 year-earlier.

Guidance:

For the full year 2018 revenue is expected between $12.7 and $13.0 billion. R&D expense between 16% and 17% of revenue; SG&A 15% to 16% of revenue. GAAP tax rate $23.5% to 24.5%; non-GAAP taxes 22.5% to 23.5%.

Resulting in GAAP diluted EPS between $22.20 and $23.20; non-GAAP EPS $24.20 and $25.20.

Conference Highlights:

CEO Michel Vounatsos said: "“With a renewed focus on our strategic priorities, we delivered record full year revenues, solid earnings, and significant progress in strengthening the foundation for our future with seven additions to our neuroscience pipeline in 2017.
Our core MS business demonstrated resilience in an increasingly competitive market, and Spinraza has had one of the most successful rare disease launches of all time, bringing new hope to patients and their families. We are also proud of our achievements in business development, with 2017 being one of the most productive years in Biogen’s history.
Over the next 12 to 18 months, we expect several important data readouts across both our core and emerging growth areas as we continue to advance an industry-leading neuroscience portfolio.”

For the full year 2017 revenue was $12.3 billion, up 7% y/y, but up 15% taking out the Bioverativ spinoff. GAAP net income was $2.5 billion or $11.92 per share. Non-GAAP net income was $4.6 billion or $21.81 per share.

Preparing to move offshore cash back to the U.S.

"In 2017, Biogen added seven clinical programs to its neuroscience pipeline including BIIB098 (MMF prodrug) for MS, BIIB092 (anti-tau antibody) for both Alzheimer’s disease and progressive supranuclear palsy, BIIB076 (anti-tau antibody) for Alzheimer’s disease, BIIB080 (tau antisense oligonucleotide) for Alzheimer’s disease, BIIB093 (IV glibenclamide) for large hemispheric infarction, and natalizumab for drug-resistant focal epilepsy."

Biogen continues actively enrolling two global Phase 3 studies for aducanumab in early Alzheimer’s disease. Enrollment should complete in 2018. Data from the long-term extension phase 1b study released in November support the design of the Phase 3 trial.

Spinraza (Nusinersen) for spinal muscular atrophy (SMA) uptake was strong. Expansion outside the U.S. remains a priority.

Non-GAAP net income was $1.12 billion, down 16% sequentially from $1.34 billion and up 3% from $1.09 billion year-earlier. Non-GAAP EPS was $5.26, down 17% sequentially from $6.31 and up 4% from $5.04 year-earlier.

There is some pricing pressure in the MS segment.

Total product revenue was $2.71 billion, up 3% sequentially from $2.62 billion and up 8% from $2.50 billion year-earlier. That excludes the Rituxan revenue and other revenue.

*unconsolidated joint business revenue, Anti-CD20 products
**spun off to Bioverativ in Q1 2017
*** mainly contract manufacturing

Cash and equivalents (including marketable securities) balance ended at $6.75 billion, up sequentially from $6.6 billion. $5.94 billion notes payable. For the full year 2017, $1.4 billion was spent to repurchase shares.

Cost of sales was $509 million. Research and development expense was $588 million. Selling, general and administrative expense $572 million. Amortization of acquired intangible assets $140 million. Acquired in-process research and development of $0 million. Fair value adjustment of contingent consideration $2 million. Collaboration profit sharing $30 million. Total cost and expenses $1.84 billion. Leaving income from operations of $1.47 billion. Other expense $66 million. Income taxes $1.57 billion. Net income attributable to noncontrolling interests, $131 million.

"In January 2018, Biogen acquired the exclusive worldwide rights to develop and commercialize Karyopharm Therapeutics Inc.’s Phase 1 ready investigational oral compound KPT-350 for the treatment of certain neurological and neurodegenerative conditions, primarily amyotrophic lateral sclerosis (ALS). KPT-350 is a novel therapeutic candidate that works by inhibiting XPO1, with the goal of reducing inflammation and neurotoxicity, along with increasing neuroprotective responses. Biogen will pay Karyopharm a one-time upfront payment of $10 million and up to an additional $207 million in milestones, plus tiered royalty payments on potential sales of KPT-350."

"In December 2017, Biogen and Ionis entered into a new collaboration agreement to identify new ASO drug candidates for the treatment of SMA. Biogen will have the option to license therapies arising out of this collaboration and will be responsible for their development and commercialization."

Imraldi, an Adisimulab (Humira) biosimilar approved in Europe.

Opicinumab for relapsing MS started a phase 2b trial, Affinity, in October.

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.

BAN2401 for alzheimer's did not meet its goals.

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:

M&A strategy? Depends on long-term value. More cash does not mean a frenzy of acquisitions. Must be rational for us. Believes early assets are the sweet spot, but does contemplate larger assets. We have a lot of cash capacity to add to the business, but we also want to return cash to shareholders.

Tysabri stroke study? It would be significant if it works. Testing 2 doses. Will have to wait for the Phase 2 data.

BIIB98-mmf? Do not have a data presentation date, but should be this year.

Biosimilar business? Well positioned, with an option to buy in more.

Gross margin trend, effect of contract manufacturing and biosimilars? They went down Q3 to Q4 due to growing corporate partner revenue, which has lower revenues. Also the $20 million Zinbryta inventory charge. Next year margins should improve from Q4.

Driver of ex-U.S. Spinraza growth? Pleased with momentum. The most urgent to treat patients are mostly onboard in the U.S. Ex-U.S. is still largely just 3 markets, so still a long way to go. Now reimbursing in 18 markets.

ALS strategic vision? Karyopharm compound is preclinical. Could reduce hallmark pathology. Could be oral for scoriatic ALS, so complements the Ionis program which is for genetic forms of ALS.

New patient lower U.S. adds in U.S. for Spinraza? More holidays in Q4, plus already did most of the most urgent patients, and now to the difficult to treat patients. There is a long queue of patients waiting for therapy.

2018 guidance price vs. growth? Prices up about 8%, varies by product, but gross to net will be worse. U.S. volumes a bit pressured in first half, then come back. EU volumes should grow, but with slight price decreases. Interferon class also has headwinds.

BIIB098 for MS? We are looking for different gastric tolerability.

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