Biogen Inc. (NASDAQ:BIIB) Morgan Stanley 20th Annual Global Healthcare Conference Call September 12, 2022 9:55 AM ET
Company Participants
Michael McDonnell – Chief Financial Officer
Priya Singhal – Head of Global Safety and Regulatory Sciences and Interim Head of R&D
Conference Call Participants
Matthew Harrison – Morgan Stanley & Co. LLC
Matthew Harrison
Great. Good morning, everybody. Thanks for joining us for the next session. I’m Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Really pleased to have Biogen with us for the next session. We have Michael McDonnell, who is the CFO and Priya Singhal, who is the Interim Head of R&D. Michael, I know you want to make some opening comments, I’ll turn it over to you and then we can jump into it.
Michael McDonnell
Sure. Thank you, Matthew, and thanks for having us. Thanks for joining us everyone. I do want to mention upfront that Priya and I may be making some forward-looking statements during the course of the presentation this morning, which have certain risks and uncertainties. And I would refer you to our risk factors in our public filings as actual outcomes could be different than forward-looking statements.
So at Biogen, it’s been a few months now since we last reported. July was the last time we reported our second quarter and we were pleased on that call to increase our guidance. Both the topline and the bottom line of revenue range from $9.7 billion to $10 billion, we increased to $9.9 billion to $10.1 billion. And on the EPS line, we increased our guidance from $14.25 to $16 to a new range of $15.25 to $16.75. And we are able to do that increase on the bottom line not withstanding a little over a $1.25 of headwinds from foreign currency changes that occurred from the beginning of the year as well as the write-off of some ADUHELM inventory, which were not factored into our original guidance. So overall, very focused on performing and our number one initiative, which is returning to growth. As you are probably aware, our MS franchise has been impacted by the entry of generics.
And on that front, we have some upcoming – we have an upcoming readout on The Clarity AD study for a product called Lecanemab, which we are developing in coordination with Eisai and we expect that readout in the fall. We also are working closely with Sage Therapeutics on a product called zuranolone and we expect to complete a filing in the U.S. before the end of this year for both major depressive disorder and postpartum depression.
And then lastly, we have tofersen, which is a product that has been accepted. We have a filing which been accepted by the FDA and that’s an investigational drug for the treatment of ALS. We have also said publicly that we are focused on five operational priorities. The first of which is making sure that we appropriately prioritize our R&D. And our pipeline under Priya’s leadership, just making sure that we rebalance our risk and focused our efforts on the programs that are most likely to achieve success.
Secondly, we have done a lot on the – on cost initiatives. We announced $500 million of cost savings in December of last year and another $500 million in April of this year, and we are complete with the first $500 million and well on our way with the second $500 million. We will reinvest some of those savings and areas that we think can create growth initiatives for us. But we are working very hard to realign our cost base given the generic competition that I mentioned.
Third, we are very focused on continuing our international expansion. We have a number of promising markets. China would be one that I would cite where we’ve had a very good uptake in our SPINRAZA product for spinal muscular atrophy, since launching that earlier this year.
Fourth, we are committed to growing our biosimilar business. You may have seen that we exited our joint venture with Samsung, which actually gives us a greater ability to develop products on our own. We have a product called BYOOVIZ, which is a biosimilar, which references LUCENTIS. That launched in June of this year and that continues to progress, and we are excited about the potential growth prospects in our biosimilar business given that current state.
And then lastly, we remain very focused on capital allocation and making sure that we optimize our allocation, protecting our P&L through cost reductions as well as share buybacks while also investing in business development activities that we think could supplement our pipeline, which today has 29 programs, 10 of which are in Phase III or filed. And we believe that with the pipeline and the balance sheet that we have and the capital that we can allocate that we can bring ourselves back to growth over time.
Question-and-Answer Session
Q – Matthew Harrison
Great. Thank you. And you reminded me that I still need to remind people that you can find important disclosures at morganstanley.com/researchdisclosures, so now we’re all covered. So maybe just to start us off a broader high level question, right? I think one of the things a lot of people observe is there’s a lot of uncertainty right now for Biogen. You’re in the midst of looking for a new CEO, as you referenced the lecanemab readout presents a good deal of optionality, but also a good deal of uncertainty. And so how do you think about – just broadly, how do you think about prosecuting the business in that level of uncertainty and from a strategic standpoint how do you think about business development in that context as well?
Michael McDonnell
Yes. I would say the business that we’re in has uncertainty in it by definition. And I think any company that’s in the biopharma business has – you have to have a plan A and you have to have a plan B and sometimes you have to have a plan C. So in the event that you have something that doesn’t go away that you hope or you expect you can take measures like realigning your cost base or shifting your capital allocation appropriately. I think having a very strong balance sheet as a backdrop to all that, which is something that we’re fortunate enough to have at Biogen is something that we’re very fortunate to have.
And I would say on the business development front, we continue to see a large pipeline of opportunities, early stage, late stage points in between. We’ve done about $6.5 billion of business development in the last 5 – 5.5 years over about 30 deals and that will continue. It’s probably 80% to 90% of the programs that we currently have came through some form of collaboration. So we’ll continue to be active on that front.
Matthew Harrison
And can you just give us some update on CEO search? Where is that and how should people be thinking about that? And I guess the key question is, is it realistic to assume that until we get the lecanemab result, we probably aren’t in a position to announce a new CEO?
Michael McDonnell
Sure. The CEO search is being conducted by our Board and I don’t have an update to provide at this point in time from everything I’m hearing. The search is progressing as planned, and obviously we’ll share an update at the appropriate time.
Matthew Harrison
Okay, perfect. So lecanemab obviously is the big event, people are focused on maybe just to frame it for everybody. Can you just talk about what you view as a successful outcome from that study? And specifically what I mean is on clinical efficacy, what is a successful outcome?
Priya Singhal
Thank you. Good morning, everyone. I’m Priya Singhal, and thank you for that question. So just stepping back and thinking about the lecanemab Clarity AD study, which is a Phase III study, it’s ongoing and is expected to readout this fall. And Eisai has communicated publicly that this is a well powered study. We believe it’s very robust. It has almost 1,800 patients enrolled, and it has the primary endpoint of CDR Sum of Boxes, which we believe is an inherently clinically meaningful endpoint. It is the combination of cognition and function, and we believe that a statistical significance on this endpoint would be meaningful. So I’ll just say that we are looking forward to the results of Clarity AD.
Having said that, I think it’s also important to remember that lecanemab from a mechanistic perspective targets, aggregated amyloid as well as the soluble targeted – soluble amyloid species, which are thought to impact synaptic function and therefore, learning and memory. And we’ll see how the selectivity plays out.
And then moving to safety. This is the Phase III study and from the Phase II study, we know that the rates of ARIA were about 10%. And so we’ll see what this shows the Clarity study, but we are encouraged by the Phase II results. And overall, it will be the benefit risk profile and the impact on clinical decline. So just stepping back, thinking about the clinical decline, the study is powered more than 90% to detect a 0.37 difference on the CDR Sum of Boxes. And we are encouraged by what FDA has said in the aducanumab briefing documents that they would consider a statistically significant outcome on this primary endpoint as being inherently clinically meaningful. So we’ll wait to see how lecanemab reads out, but I’m happy to answer any other questions.
Matthew Harrison
Yes. Firstly, you highlighted a couple of things, which I think people will ask about. So the first one is ApoE ε4 carriers were excluded from a large portion of the Phase II study. So how does that impact or doesn’t impact the ARIA rates and how should people think about that?
Priya Singhal
Sure. It’s a great question. So yes, ApoE ε4 carriers were limited in this 10 milligram biweekly dose in the Phase II trial, however, and we saw about a rate of ARIA of about 9.9% thereabouts. But when the placebo patients rolled over to drug in the open-label extension, we saw that the rates were about 8.9%. So very similar, and that had two-thirds carrier breakdown. So we don’t expect to see a very big difference in the ARIA rates. We’ll see how the Clarity AD reads out, but we believe that it will be very robust enough to inform on the full clinical profile.
Matthew Harrison
And then second question, you talked about soluble versus aggregate plaque. Can you just compare and contrast because obviously there are two other agents reading out, let’s call it over the next 12 months about what impacts off targeting of soluble plaques could have, and if you think that could be a differentiator?
Priya Singhal
Sure. So I think overall, we are excited that there’s more than one product coming forward with this hypothesis in mind, the anti-amyloid hypothesis, which we believe has merit. Stepping back as we think about the three products, which are lecanemab, donanemab and gantenerumab, they all have slightly different selectivity. With lecanemab, I’ll reiterate, it affects the toxic soluble species as well as aggregated amyloid, which is seen on PET, for example.
Now with donanemab, it is highly specific for the aggregated plaque and with gantenerumab, it’s not very clear exactly on the selectivity profile, but we have learned from the first generation anti-amyloid therapies that selectivity is important. So we’ll have to see how it plays out. And I think we have to wait for the Phase III outcomes and ultimately the labels to see how these products will be differentiated. But based on the literature and the other evidence that we’ve seen so far, we do believe that toxic soluble species and engaging those will be important if you think about their function, which is thought to be sort of impacting the synaptic function and thereby limiting memory and learning. So we think it might be helpful, but we’ll have to wait to see.
Matthew Harrison
Okay, perfect. And then I guess third question is really around clinical meaningfulness and it’s sort of a two part. So I think before ADUHELM and before the NCD with CMS, I think a lot of people would have agreed that whatever got you over the regulatory goal line would have carried sort of broader weight. And I think there’s an investor debate now about that especially about what CMS might do as clinically meaningful and is that different than the regulatory standard?
So I guess the question sort of has two parts. So when we reverse engineered the study from a powering standpoint, our estimates are that the study can be successful without a 15% relative risk reduction between the two arms. So one, I guess, do your comment – so you can comment on whether you agree with that point, you probably won’t, but do your comments reflect that you think that kind of difference is clinically meaningful or how do you think about the difference between CMS and the regulator?
Priya Singhal
It’s an excellent point. And I think that the aducanumab story has definitely highlighted that. So I’ll just step back here. So I think first is regulatory approval and we’ve already spoken about what the FDA could consider as clinically meaningful. FDA has also agreed that Clarity AD if positive could serve as a confirmatory study because as you know the current filing with Priority Review and a PDUFA of January 6 is along the accelerated pathway. So just wanted to clarify those points.
Moving on to the fact about NCD and access to patients, which is of course the ultimate goal is getting drugs that work to patients. So I’ll just step back and make a few comments about what the spinal NCD said. So first, I think the final NCD said that products that receive full approval would still be needed – would still may need to have prospective comparative studies, but that this data could be collected in a registry. So it leaves some of this information sort of a little unclear, but I think what it does indicate is that the rigor and it speaks to this, that the rigor of these prospective comparative studies would depend on the strength of evidence of the data that garners the full approval. So on the strength of evidence of the confirmatory study, if you apply it to the lecanemab situation.
And then finally, that’s about the product. So it depends on the individual product. Separately, the final NCD also says that once they look at all the products, they may reconsider their guidance based for the class. So I think it gives us a few pointers into how NCD is going to be structured when you look at these individual products and when you look at the class. I think what remains to be seen is the individual strength of the data from the confirmatory studies. And we will see these confirmatory studies readout across all three molecules. So that’s important.
And I think that that will make the difference in terms of whether NCD would grant access or not. But at this point, we are encouraged by the fact that this is the guidance. The other aspect here and Eisai has already initiated discussions with CMS to discuss further about how data from Clarity AD would be reviewed and evaluated by them as they consider the scenario of access. So I think that’s what I can tell you.
Matthew Harrison
Okay. Perfect. And I was going to start to ask my questions, but I got one. For you on lecanemab that I forgot to ask, which is obviously when you have a confirmatory study like this, which is much, which is a large study. And a single, even though it’s not a single study because you have the Phase IIb I. think investors worry about strength of evidence in that study and what the regulatory standard is. I know you haven’t commented specifically, what the P value needs to be or doesn’t need to be, but what’s your perspective on how people should think about that when we see the data is successful?
Priya Singhal
Yes. I think we need to wait for the data. And I know Eisai has commented on the fact about CDR Sum of Boxes and it’s got an important slate of secondary endpoint and it’s a well powered study. The other aspect that’s really important from a regulatory perspective, but also from a CMS and NCD perspective is that it does include about 25% of an underrepresented population. The population largely is reflective of the CMS population in terms of comorbidities as well as concomitant medications. All of this is very important. So I think we have to wait to see how the study reads out and we just have to wait.
Matthew Harrison
Okay. I guess this might be for either of you, but one of the other questions investors have a lot is, we obviously know we’re going to get the full data set at CTAD because there’s a date set on that. I think everybody is assuming we’re going to get a topline release. Before then, can you give us any sense for what may or may not be included in the topline release? Should we just expect, for example, should we just expect to see something that says study worked or study failed or should we expect to actually see some details around some of the endpoints?
Priya Singhal
Eisai has not commented on exactly what would be included in the topline data, but I think you can expect trial topline data at a high level. And then yes, there is a place folder for CTAD with the data readout.
Matthew Harrison
Okay. Perfect. All right. Mike over to you, I think there are two questions about lecanemab then, which is first if successful, how do you avoid the scenario that you had with ADUHELM, whether it’s about how you price the drug, whether it’s about how you go after CMS, et cetera. I leave it open ended, but I think everybody would be interested to hear what you have…
Michael McDonnell
Sure. And I would say, first and foremost, we have an excellent collaboration with Eisai, it’s very collaborative, it’s very transparent, it’s very open book. I think with ADUHELM, a lot of members of the community just couldn’t get over the futility analysis and the fact that you had a positive study and a negative study. Clarity AD is a very large well powered study. We’ll have the readout later in the fall. And I would just say that any learnings that we gathered going through the ADUHELM experience, be they development learnings or commercial learnings or absolutely being communicated to Eisai real-time, so that we can just absolutely maximize the probability of success for lecanemab.
Matthew Harrison
And then in the scenario of a failure, what kinds of things do you think about, when you think – when you need to talk about Plan B, Plan C at the beginning, but what are those things should we think about cost levers immediately being looked at, should we think about more aggressive business development? Just give us a sense of what those other plans?
Michael McDonnell
Sure. I think the most important thing is again, returning to growth, lecanemab is an important element of that. And it requires investment to return to growth. So we have to continue our research and development programs and those will continue. Regardless, we will certainly – we are always looking at costs on an ongoing basis and I would say, on the cost front, we’ve done a lot. We had a $5.2 billion total OpEx in 2021. Our most recent guidance for 2022 is a range of about $4.5 billion to $4.7 billion. And that does not reflect the full run rate of the cost measures, which we just kicked off this year, that’ll come a bit later, we expect to get the full run rate sometime in 2023.
So we’ve done a lot on the cost side. We certainly need to protect our P&L, we understand that. We would certainly in the hopefully unlikely event of a lecanemab failure need to step back and figure out what other cost measures need to be taken. But I do feel like we’ve done quite a bit on the cost front and we try to be mindful of scenarios A, B and C as put together those billion dollars of initiatives.
Matthew Harrison
And sorry to push on this, but I mean, I guess the question is just, it sounds like from the way you’re talking about this that you don’t see substantial amounts of cost reduction as an available lever. So maybe you could just clarify exactly what you’re trying to say?
Michael McDonnell
Yes. I mean, what I would say is that, we’ve announced a $1 billion, that’s all we’ve said publicly. We will execute on that. And to the extent that we don’t have a good outcome on lecanemab, we’ll have to step back and say, is there more that we have to take, we’re not commenting on that today. But what I would say is that, we have done a lot and we do need to continue to invest both organically and inorganically to bring ourselves back to growth. So the R&D engine needs to continue in a robust way. And we do need to continue to look at business development activities, and that’s regardless of the outcome on lecanemab.
Matthew Harrison
Okay. Perfect. Maybe last lecanemab question is just update on subcu, obviously, I think from a commercial standpoint, that’s probably an important feature. So where is the subcu formulation right now? And do you think – I guess, how should we think about timeline for that potentially come in the market?
Priya Singhal
Sure. So overall, Eisai has been working on life cycle management for lecanemab and subcu does an important component of it. The other important component is maintenance. And that’s where they’re working in the Phase II open-label extension and subcutaneous dosing. And the plan for that is being discussed and evaluated with regulators. And they’re working on it primarily in the Phase III open-label extension. So that’s how they’re approaching the two initiatives.
With subcutaneous, they have shared their Phase I bioavailability data. They have also done modeling and simulation based on the Phase II data and looked at comparable measures for exposure, but also for safety and efficacy. And recently, they’ve just announced actually another study where they’re looking at comparing an autoinjector to vials for subcu. So I think overall, it remains very important. There’s a full comprehensive plan and approach that is being discussed with regulators and data has already been shared in the public domain on what we’ve learned so far and what Eisai has presented so far. So beyond that, on the timeline, I can’t really comment, but I can tell you that it continues to make progress and we continue to plan for that.
Matthew Harrison
Okay, great. At the beginning you commented briefly on sort of pipeline reallocation in terms of the risk spectrum of the pipeline. And I guess I want to ask a question on how much of that can you do before you get a new CEO. And so what’s the progress that you have there. And then secondly, how should we think about that sort of pipeline reallocation in the context of business development?
Michael McDonnell
Yes. A couple of comments I would make. I think that under Priya’s leadership, we’re always looking at the R&D pipeline and making sure that we do our very best to prioritize appropriately and maximize our returns. Logically, any new CEO is going to want to put their lens on R&D, I think that would go without saying. I think that one other comment that’s a little bit tangential, but I think it’s important when you look at some of the areas that we’re pursuing, I think, one thing that’s a little bit maybe underappreciated is just the tremendous unmet need in a couple of the areas, like as an example, the World Health Organization, estimates that there are over 30 million people that are suffering from Alzheimer’s disease and over 280 million people that are suffering from depression. So these are just areas of tremendous unmet need that we’re very focused on and to the extent that we can be successful with products like lecanemab and zuranolone, obviously that’ll be very beneficial for patients as well as stakeholders.
Priya Singhal
I can add to that. And I can provide some granularity on how we are approaching the R&D prioritization. But you said rightly, it’s one of the five key strategic imperatives that we put forward earlier this year. And just stepping back, I want to give you a flavor of how we are approaching it. So the way we are looking at it is that we have a lot of expertise with biomarkers in neuroscience, we have access to all our modalities and we have functional genomics. And we have the clinical data that we’ve seen so far. We have acknowledged that we have some failures in POC. So the way I’m approaching it along with my leadership team and the entire organization is we are separating the portfolio into areas where we understand the biology. We understand mechanism of disease, mechanism of drug, and we believe we can prosecute the chain of translatability to POC success. And that’s where we are accelerating, investing to win, doing more at risk.
On the other side, we have very attractive targets where there’s emerging data, but the biology is uncertain and needs to be de-risked. And that’s where we are going after the next decision point, and how do we de-risk the biology. We’re looking at this in a very integrated manner across the entire portfolio. And I think that this is an exercise that needs to be done on an ongoing manner. And I’m sure that a new CEO would have a view, but I think this continues and has continued throughout. So it’s a very high focus.
The other area I want to point out in terms of our R&D prioritization that in the near-term, we have run alone, which we believe because of its GABAergic mechanism and its impact on not only the function of the GABAA receptor, but also on the expression intra-synaptic and post-synaptic that this could indeed be a portfolio in a bill. So while we are focusing our energies along with Sage on the filing, and we’ve already – we’ve had our Phase III readouts, we’re in the process of finishing up filing in the second half of 2022 for both MDD and PPD in an integrated manner and we have priority. We hope to really have a robust filing.
I think that the most important piece here is that we are thinking about the new indications, similarly with BIIB059, which is an agent in two Phase III trials for SLE. And also, we are looking at it for CLE. This could be first-in-class and best-in-class, but because of its type I interferon signature and its impact on pDC cells, we believe this could have applications way beyond lupus. So we are looking at other indications. These are very important near-term growth, along with all the other products that Mike mentioned. And so we’re really looking very systematically across the entire R&D pipeline.
Matthew Harrison
Great. Thank you. So maybe in the last couple of minutes, we’ll do some quick hits here. So TYSABRI, what’s the outlook there now, given the potential for biosimilars in Europe and in the U.S.?
Michael McDonnell
Sure. So we are aware that regulatory filings have been made for a biosimilar, which references TYSABRI in both the U.S. and in Europe and in lesson joined, we could see biosimilar entry at some point next year on TYSABRI. What I can say is that while our composition of matter patent has expired, we have other patents which are disclosed in our 10-K and other SEC filings and we are defending our intellectual property. We did filed a lawsuit in the U.S. District Court of Delaware on Friday against Sandoz, a copy of that is not yet available, but we do expect that a redacted copy of that will be available in the near-term. And we are defending our intellectual property on that front.
I would just somewhat tangential, but I think important in Europe, where we have a subcu application for TYSABRI, we have seen very good uptake. We’re in over 25 markets now with an average uptake of about 35%. And we have nine markets where we’re north of 50% on subcu uptake.
Matthew Harrison
SMA?
Michael McDonnell
So SMA, obviously the introduction of orals has created competition in that space. And we believe that that the attractiveness and an oral was somewhat heightened during COVID where the convenience element of not having to go into a medical clinic was more significant. We have seen in the U.S. now that COVID is thankfully abating. We have seen a reduction in the number of switches away from SPINRAZA and an increase in patients coming back in Europe. It’s a little bit earlier in the introduction of the oral. So we are applying lessons learned in the U.S., and we’re hopeful that we can bring that product back to some modest growth level over time given the great efficacy that it has. We’re conducting some real world studies in that space as well, that you may want to comment on very quickly. Priya?
Priya Singhal
Sure. So with SPINRAZA, we have seen patients return to SPINRAZA post gene therapy and also post oral risdiplam. And with this in mind, we have embarked upon pre-real world studies. So we have the DEVOTE study where we are studying a higher dose of SPINRAZA because preclinical data tells us that we could dose higher for potentially more benefit with preserved safety. So that’s one, that’s the DEVOTE study respond as a study where we have patients coming back to SPINRAZA after they’ve been on gene therapy for residual treatment benefits.
And then we have a third study, which is the ASCEND study, a global Phase IIIb study, where we are studying patients who’ve been on risdiplam who are returning to SPINRAZA with high dose. So this is an important set of data that we are really committed to providing prescribers and patients because we believe that continues to be a high unmet need. I’ll also say that this remains an area of high focus. We see ourselves as leaders and we had announced earlier this year that we are also looking at a second generation antisense oligonucleotide, which is BIIB115, where we could get an extended interval dosing similar to in SPINRAZA, but extended interval dosing. So we continue to look at this space and generate data that can be relied on by prescribers.
Matthew Harrison
Well, great. I think we’ve come to the end. So thank you both for being here. Thanks for taking the questions.
Michael McDonnell
Thanks for having us.
Matthew Harrison
Thank you.
Priya Singhal
Thank you for having us.
Matthew Harrison
Thanks everyone.
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