Analyst Conference Call Summary

biotechnology

conference date: July 23, 2019 @ 5:00 AM Pacific Time
for quarter ending: June 30, 2019 (second quarter, Q2 2019)

Forward-looking statements

Overview: Solid 8% y/y revenue increase while adding to the pipeline. Raised full year 2019 guidance.

Basic data (GAAP):

Revenues were $3.62 billion, up 4% sequentially from $3.49 billion and up 8% from $3.36 billion in the year-earlier quarter.

Net income $1.49 billion, up 6% sequentially from $1.41 billion and up 72% from $0.87 billion in the year-earlier quarter.

EPS (earnings per share, diluted) were $7.85, up 10% sequentially from $7.15 and up 88% from $4.18 year-earlier.

Guidance:

Raised full year 2019 guidance.

Revenue now expected between $14.0 and $14.2 billion, up from the prior guidance of $13.6 to $13.8 billion. R&D expense lowered to 16% to 17% of total revenue. GAAP SG&A unchanged at 15.5% to 16.5%, non-GAAP lowered to 15.5% to 16.5%. Tax rate lowered to 17% to 18% GAAP, 15.5% to 16.5% non-GAAP.

GAAP diluted EPS increased to $29.60 to $30.40 and non-GAAP EPS increased to $31.50 to $32.30.

Conference Highlights:

CEO Michel Vounatsos said: "Biogen delivered solid performance globally in the second quarter, and we believe we are on track for a strong year. We added four new programs to our pipeline this quarter, as we continued to diversify and build depth within neuroscience and pursue therapeutic adjacencies. Specifically, the acquisition of Nightstar Therapeutics has provided us with two potentially first-in-class mid- to late-stage gene therapy programs in specialty ophthalmology, and we initiated two new studies in our priority areas of multiple sclerosis and amyotrophic lateral sclerosis. We continued to allocate capital, and we remain focused on investing in the areas we believe have the highest potential return for shareholders."

Biosimilars were a growth driver, especially Imraldi. Avonex and Plegridy continued their revenue declines, but MS therapies overall showed good revenue growth.

Revenue growth was driven by Spinraza, now available in over 40 nations. Revenue waw $488 million, down sequentially from $518 million, but up 15% y/y from $423 million. New data presented in April highlighted efficacy. Believes despite possible new gene-therapy competion Spinraza will continue to be the standard of care for years. Now 8,400 patients on Spinraza, and was up 4% in the U.S. v. Q1. Believes could be 45,000 patients world-wide. The sequential revenue drop was due to quarter-specific factors.

The increase in GAAP SG&A expense in Q2 2019, v. Q2 2018, was primarily due to acquisition related charges in connection with the acquisition of Nightstar Therapeutics plc (NST), totaling approximately $33 million, including $18 million of stock-based compensation expense.

GAAP other expense was $197 million including $174 million in net losses on investments, principally driven by a decrease in the fair value of Biogen's equity investment in Ionis.

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

Now views ophthamology as a core growth area.

Over the next 12 months Biogen expects to expand its pipeline in MS and neuroimmunology, dementia, neuromuscular disorders, movement disorders, and ophthalmology.

Non-GAAP net income was $1.74 billion, up 27% sequentially from $1.37 billion and up 45% from $1.20 billion year-earlier. Non-GAAP EPS was $9.15, up 31% sequentially from $6.98 and up 58% from $5.80 year-earlier.

Total product revenue was $2.88 billion, up 4% sequentially from $2.68 billion and up 8% from $3.36 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 $4.3 billion, down sequentially from $5.28 billion. $5.9 billion notes payable. $2.4 billion was spent to repurchase shares. $2.0 billion cash flow from operations.

Cost of sales was $476 million. Research and development expense was $484 million. Selling, general and administrative expense $588 million. Amortization of acquired intangible assets $70 million. Collaboration profit sharing $64 million. Other gains $22 million. Total cost and expenses $1.66 billion. Leaving income from operations of $1.96 billion. Other expense $197 million. Income taxes $248 million. Equity in loss of investee, $16 million.

In June 2019 Roche announced positive topline results for NOBILITY, a Phase 2 study investigating the safety and efficacy of Gazyva for adults with proliferative lupus nephritis. The study met its primary endpoint and secondary endpoints. It is part of a collaboration between Biogen and Genentech in the U.S.

In March the aducanumab Phase 3 trials for Alzheimer's were discontinued as data showed they were unlikely to hit their endpoints.

In June 2019, Biogen's collaboration partner UCB presented interim results from the Phase 2b study of dapirolizumab pegol (DZP) in patients with active systemic lupus erythematosus (SLE). The study demonstrated consistent and potentially meaningful improvements for the majority of clinical endpoints in patients treated with DZP compared with placebo. In addition, biomarker data demonstrated evidence of proof of biology. DZP was well tolerated and demonstrated an acceptable safety profile. Biogen and UCB now are planning a Phase 3 study.

In June 2019 Biogen completed its acquisition of NST, a clinical-stage gene therapy company focused on adeno-associated virus treatments for inherited retinal disorders. This added two mid- to late-stage clinical assets, as well as preclinical programs, in ophthalmology. The total transaction value was approximately $800 million.

In March 2019 the first patient was dosed in the Phase 3 VALOR study of BIIB067 (tofersen), an antisense oligonucleotide for amyotrophic lateral sclerosis (ALS) with superoxide dismutase 1 (SOD1) mutations. The primary endpoint is an analysis based on the Amyotrophic Lateral Sclerosis Functional Rating Scale-Revised (ALSFRS-R) Score.

In February 2019 Alkermes plc and Biogen announced that the FDA accepted the New Drug Application (NDA) for diroximel fumarate (BIIB098), a novel oral fumarate for the treatment of relapsing forms of MS. If approved, Biogen intends to market diroximel fumarate under the brand name Vumerity. The NDA has been assigned a PDUFA (Prescription Drug User Fee Act) target action date in the fourth quarter of 2019. In May 2019 Biogen presented new interim data from the ongoing open-label, pivotal study of BIIB098 (diroximel fumarate) in relapsing MS (RMS) at the annual meeting of the Consortium of Multiple Sclerosis Centers. The data indicated that diroximel fumarate was generally well tolerated and significantly reduced disease activity in newly diagnosed RMS patients and those previously treated with interferons or glatiramer acetate. Treatment discontinuations due to gastrointestinal events occurred at a low rate over one year.

In March 2019 Biogen announced that it had entered into an agreement to acquire Nightstar Therapeutics plc (NST), a clinical-stage gene therapy company focused on adeno-associated virus treatments for inherited retinal disorders. Biogen would pay NST shareholders $25.50 in cash for each issued and outstanding NST share. This offer represents a total transaction value of approximately $800 million on a fully diluted basis. NST has two potentially first-in-class mid- to late-stage clinical assets as well as preclinical programs. NST's lead asset NSR-REP1 is in Phase 3 development for choroideremia, a rare degenerative disorder that leads to blindness and has no approved treatment options, with data expected in 2H 2020. BIIB112 for X-linked rhetinitis pigmentosa also expects data in 2H 2020. The closing of the proposed acquisition remains subject to customary closing conditions. Biogen has completed the acquisition.

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.

BIIB091 for MS dosed its first patient in Q2. It is an inhibor of BTK (Bruton's Tyrosine Kinase). Biogen hopes it will prove to be best in class.

In May 2019 Biogen's collaboration partner Eisai dosed the first patient in the global Phase 3 study of BAN2401 in early Alzheimer's disease.

In May 2019 Biogen presented interim results of the Phase 1/2 study of BIIB067 (tofersen), an antisense oligonucleotide being studied for the potential treatment of amyotrophic lateral sclerosis (ALS) in adults with a confirmed superoxide dismutase 1 (SOD1) mutation. The data demonstrated a statistically significant reduction in SOD1 protein levels and a numerical trend towards slowing of clinical decline in SOD1-ALS patients treated with tofersen compared to placebo.

BIIB093 is in a Phase 3 for cerebral edema associated with large hemispheric infarction.

BIIB074 Phase 2 for small fiber neuropathy is enrolling. BIIB074 (vixotrigine)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. Phase 2b study is expeced in late 2020.

Data from a Phase 2 study of BIIB092 for progressive suprnuclear palsy is expected in 2H 2019 and could support a regulatory filing.

BIIB054 for Parkinson's completed Phase 2 enrollment. Data is expected in 2H 2020.

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:

Spinraza vs. competition, q/q decline? We don't see any warehousing for the competitor Zolgensma. Patient numbers were up sequentially. We have only penetrated 20% of the adult market, which Zolgensma is not approved for. We see a continuing growth opportunity.

Steps to bolster balance sheet? Repurchase plans? We have very strong cash flow. We have no intent to lever up the balance sheet. We seek to optimize shareholder value via repurchases or acquisitions.

Tecfidera generics? No comment on IP situation, but looking to get it resolved.

Aducanumab monitoring of patients? Amyloid hypothesis? We are not ready to present the data, will present it at a medical meeting when it is ready.

BIIB092 endpoints, Tau hypothesis? Results will be available towards the end of 2019. We are hoping to see a ratings scale effect. We have shown lower Tau. In PSP the PET imaging does not recognize Tau.

Skyhawk investment? We are looking at potential clinical candidates, but no timelines yet.

EBV (virus) as MS target? It is an interesting hypothesis. We are looking at early and novel targets. There is a hypothesis that Epstein-Barr virus can cause the onset of MS.

We are looking at the data from Aducanumab and want to have a full understanding before making decisions on other Alzheimer's programs.

We see the 10 readouts expected over the coming months as triggers for deciding how to allocate R&D resources.

Are you guiding to lower 2H revenue than 1H? Rituxan and Gazyva are expected to face competition in 2H, that and some one-time factors in 1H could lead to slower y/y growth in 2H.

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