Biogen Q4 2022 Earnings Call Transcript

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February 15, 2023

Key Takeaways

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Earnings Conference Call
Biogen Q4 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning. My name is Bettina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen 4th Quarter and Full Year 2022 Earnings Call and Business Update. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the conference over to Mr. Mike Henke, Head of Investor Relations. Mr. Henke, you may begin your conference.

Speaker 1

Thank you. Good morning, and welcome to Biogen's to the Q4 and full year 2022 earnings call. Before we begin, I encourage everyone to go to the Investors section of biogen.com to find the earnings release and related financial tables, including our GAAP financial measures and a reconciliation of the GAAP to non GAAP financial measures that we will discuss today. Our GAAP financials are provided in Tables 12, and Table 4 includes a reconciliation of our GAAP to non GAAP financial results. We believe non GAAP financial results better represent the ongoing economics of our business and reflect how we manage the business internally.

Speaker 1

We have also posted slides on our website that follow the discussions related

Speaker 2

to this call. I'd like

Speaker 1

to point out that we will be making forward looking statements, which are based on our expectations. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. On today's call, I'm joined by our President and Chief Executive Officer, Christopher Wiebacher Doctor. Priya Singhal, Head of Development and our CFO, Mike McDonnell.

Speaker 1

As a reminder, during the Q and A portion of the call, we kindly ask that you limit yourself to one question. I'll now turn the call over to Chris.

Speaker 3

Thank you, Mike. Good morning, everybody, and thanks for joining us. It's a pleasure to welcome you here today. This is my first earnings call since joining Biogen. Clearly, Biogen has a strong legacy as one of the pioneers in biotechnology, and there's clearly a strong foundation to build upon.

Speaker 3

Equally, there's an urgent need to restore growth to the company. We have a great opportunity ahead with the potential launch of 2 important near term launches with Alzheimer's and depression, and we have several pipeline programs. We'll be covering a lot more about how we intend to return to growth. But first, I'd like to turn this over to Mike to provide an overview of the Q4 and full year financial results.

Speaker 2

Thank you, Chris, and good morning, everyone. So I will provide some highlights of the financial performance for the Q4 and any financial comparisons that you hear me make will be versus the Q4 of to 2021. Our total revenue for the Q4 was $2,500,000,000 and that's a decrease of 7% at actual currency and 4% at constant currency. Non GAAP diluted EPS in the 4th quarter was 4.05 and that's an increase of 19% versus the Q4 of 2021. MS product revenue was $1,300,000,000 and that's a decrease of 17% at actual currency and 14% at constant currency.

Speaker 2

And this decline was primarily due to the impact of Tecfidera Generics as well as continued declines in the interferons and some pricing pressure. We have continued to see a number of the TECFIDERA generics launch across multiple European countries, and we expect a decision from the European Court of Justice related to our market protection by March 16 this year. Separately, we do continue to enforce our recently granted European TECFIDERA dosing patent, which expires in 2028. We also continue to enforce our IP for Tysabri. We have sued Pol Pharma and Sandoz to enforce those rights and have moved for preliminary injunction against the launch of Sandoz and Pol Pharma's biosimilar in the United States.

Speaker 2

Regarding potential supply constraints for VUMERITY. We believe that we have resolved previously reported manufacturing issues at our contract manufacturer. We're currently in the process of securing regulatory approvals for a secondary source of supply and we do not anticipate to the supply shortage in 2023. Moving now to SMA. Global SPINRAZA revenue was $459,000,000,000 and that's a 4% increase at actual currency and 10% at constant currency.

Speaker 2

In the United States, SPINRAZA revenue increased by 5% versus the prior year and we continue to believe that we may be seeing signs of stabilization. Outside of the U. S. Revenue increased 4% at actual currency and 12% at constant currency with continued growth primarily in our Asian markets and that was partially offset by competition in Europe. Biosimilars revenue was $175,000,000 and that's a 21% decline in actual currency and 15% at constant currency and that's due to continued pricing pressure and some net pricing adjustments during the quarter.

Speaker 2

Total anti CD20 revenue of $448,000,000 was up 8% Versus the prior year, revenue from OCREVUS royalties increased 19%, which was partially offset by a revenue decline of 14% related to our profit share on RITUXAN. The RITUXAN decline was due to biosimilar competition. Regarding expenses for the Q4, non GAAP cost of sales was $571,000,000 which is 22% of revenue And that includes $36,000,000 of idle capacity charges. Eisai's share of these charges is reflected as part of the collaboration profit sharing line and that is not part of cost of sales. 4th quarter non GAAP R and D expense was $602,000,000 And this compared to $700,000,000 in the Q4 of 2021 and the Q4 of 2021 included approximately $110,000,000 in payments related to some business development transactions.

Speaker 2

Non GAAP SG and A was $632,000,000 and this compared to $785,000,000 in the Q4 of 2021. And This decrease in SG and A expense was driven primarily by our previously announced cost savings initiatives. We remain on track to achieve our previously announced $1,000,000,000 in cost savings initiatives. And I'll comment on this a bit further when I discuss our guidance for 2023. As for our balance sheet, we ended the quarter with $5,600,000,000 in cash and marketable securities.

Speaker 2

We had $6,300,000,000 in debt and roughly $700,000,000 in net debt. And as a reminder, we expect to receive an additional $1,250,000,000 over the next 15 months from the sale of our equity stake in Samsung Bioepis, and that includes approximately $813,000,000 which is due in April of this year. So overall, we remain in a very strong financial position with significant cash and financial capacity to invest in growing the business over time. Later in the call, I will discuss our guidance assumptions as well as some important accounting considerations for 2023. But for now, I will turn the call back to Chris.

Speaker 3

Thank you, Mike. So, Biogen has recently celebrated its 45th anniversary, And this is a company that has really been built on multiple sclerosis. It had some hemophilia products until it was spun off as Bioverativ, some of you may recall that in the past and we have SPINRAZA. So now we really need to think about how do we transform the business. I know firsthand from talking to a number of neurologists that our products in MS are still considered to be The top products, but obviously this is becoming a much more competitive environment.

Speaker 3

And therefore, we really need to think about how do we grow the business in the future. Now we have an amazing opportunity with 2 new products. And as many of you know, I've been in this business a long time. And it's pretty rare that you have this opportunity to launch not 1, but 2 major products and not just any products, but products that are really quite transformative in their respective therapeutic areas. And that's obviously, Lecambi and zuranolone.

Speaker 3

We also have existing products. We can still grow VUMERITY. We can still grow SPINRAZA. And I think we need to take a fresh approach to those and try to reinvigorate the growth of those two brands. As many of you will point out to me, Biogen has a cost base that is Probably higher than most of its peers, and we need to think about that much more systematically.

Speaker 3

And some of that may Require a reduction in cost. Some of it is actually a realignment with the new growth alternatives. And then we also need to look at the R and D pipeline. Now we don't get very much credit for what we have in R and D and Prio is going to talk to you about a number of different products that we think have an awful lot of potential. Equally, the neurology franchise is slowly progressing diseases.

Speaker 3

That means you're automatically into long term and costly clinical studies. And in addition, we have some projects in there where our Phase III studies are essentially proof of concept studies. And so that makes them also inherently riskier. And I think we need to think about how do we balance the pipeline in R and D going forward. And finally, I think we should always be many companies should always be open to thinking about external growth opportunities.

Speaker 3

This hasn't always been a major thrust of the company in the past, but I do think that as we expand into other areas such as immunology, rare diseases, psychiatry, that there may be opportunities to bolster those franchises through external growth. So as you know, Lokembia has received accelerated approval in the United States in early January. We have on the same day filed for a full or traditional approval. And I have to also give credit to our partner, Eisai, because within a very short period of time, not only did they file for traditional approval on the Same day as receiving accelerated approval, but also within weeks they have filed in Europe, in Japan and initiated a rolling submission

Speaker 4

in China.

Speaker 3

And obviously, in the short term, the launch in the U. S. Is really going to be Constricted until we get reimbursement and that's expected to occur once we have a traditional approval. When we get confirmation of filing from the FDA, that's at that point, we'll know whether we have A priority review or not, under the terms of the agreement, Eisai is principally responsible and lead all of the discussions with CMS. As many of you probably have heard, Eisai has said that they are hoping to receive a broader reimbursement once they get traditional approval and that could be as early as this summer.

Speaker 3

But as you know, this is not a round white pill that we're launching here. You need to have a PET scan or a lumbar puncture to to confirm diagnosis. We're going to have infusion capacity restrictions. Neurologists have already been busy treating patients with other conditions. So there will be a question about do we have enough neurologists to expand the patient population.

Speaker 3

And so there's an awful lot to be done in the near term. In terms of though, one of the questions that comes up is And that will be the main discussion for CMS. To me, the sum of boxes, the CDR sum of boxes It's not really how we look at patient benefit here. As I talk to physicians treating Alzheimer's patients, Most of them are really asking, can I still drive a car? Can I feed myself?

Speaker 3

Can I dress myself? Can I enjoy life with my family? And how can I not be a burden to others? When you actually look at the activities of daily life, we actually saw a 37% improvement versus placebo. And to me, that's where the real benefit of this product is.

Speaker 3

Now as we to look at Alzheimer's. The other message I think I would really like to drive home today is that this is not just product launch. There is a today and there is a tomorrow. And certainly today, everybody is going to be focused on the initial sales of Can be and that's going to be a question of overcoming some of the infrastructure challenges that we just talked about. There's going to be an awful lot of education of physicians around safety, around the diagnosis And the infrastructure has to expand to be able to provide the PET scans or the CSF testing.

Speaker 3

But This is really opening up a whole new field. This is a whole new vista, both for patients and physicians. I can remember 10 years ago, where we'd had a lot of failures of medicines in development to reduce amyloid. People have given hope, up hope that this was going to be effective. Actually it was Biogen's PRIME study that was initiated about 10 years ago that actually showed that there was still hope for this.

Speaker 3

And of course, it's really the CLARITY study that has really demonstrated the importance of Removal of plaque and the potential to impact the decline in cognition. And what I think this is going to do is unleash a whole wave of Research and Development, but there's going to be other things. I mean, just even things that we're doing. Obviously, there's amyloid, There are going to be other modalities such as tau, and Priya will talk about our own potential solution in terms of tau. But we're also looking at this, the trial really focused on this 18 months of treatment.

Speaker 3

But what happens at the end of the 18 months? And there are actually already data that indicates staying on drug has a continued benefit. And so in fact, Eisai will be filing before the end of Q4 of this year an indication for the treatment on a maintenance basis. One of the other most interesting things I learned, and I've been obviously trying to get up to speed on Alzheimer's over the last 90 days, but turns out that Plaque burden is at its maximum just before symptoms arise. So imagine the benefit If we could actually go earlier and in fact there is a study called AHEAD that is looking at preclinical or pre symptomatic patients that could be quite interesting.

Speaker 3

But to do that, of course, other things like blood based biomarkers and other biomarkers are going to be important. We're going to have to make this a lot more convenient as a treatment and their subcutaneous treatment formulations in progress. And so what I think you're going to see is just a flood of information over the next 3 to 5 years as new modalities and new ways of treating Alzheimer's patients come up. So here you see the AHEAD study that was launched in 2020 and looking at pre symptomatic. 1 of the physicians who treats Alzheimer's told me, we used to think about Alzheimer's as a 7 to 8 year time frame, which was really from the onset of symptoms until sadly death.

Speaker 3

Now they're looking at this on a 25 year frame because we know that plaque builds up over time. And in fact, what we call early stage Alzheimer's today with this mild cognitive improvement It's really not. It's actually already pretty advanced by the time you have MCI. We already talked about The potential for maintenance dosing and different modalities. So this is going to be quite an exciting area as we go along.

Speaker 3

Now the other exciting areas in major depressive disorder and there are 21,000,000 people who suffer from this And every day you're reading about the major concerns around mental health in society. In fact, Steph just had an article yesterday about the number of younger people who are suffering from depression And feeling sad and even suicidal. And so there is a clear need for new treatments. There are over 400,000,000 prescriptions written every year for MDD and other mental health illnesses. But what we see is an awful lot of switching between therapies.

Speaker 3

There's a lot of concern around side effects. It takes a long time for these new medicine these existing medicines to work. And so my personal view is there's an awful lot of unmet need. I was at when we had Paxil and we had Welbutrin. So I'm pretty familiar with what the existing treatments can and cannot do.

Speaker 3

Postpartum depression, another significant area of unmet need, 1 in 8 mothers. We just had a tragic case Many of us in the Boston area are following, and it just demonstrates that there is a real need for a new approach and new treatment here. And this is not necessarily where a big commercial opportunity is, but there is a major societal need and I think that Zoran alone can make a big change here. So we have had a priority review, granted and we have now a PDUFA date in August. As you know, we can't launch immediately because there will have to be a DAA a review of the scheduling of the drug before we can launch.

Speaker 3

So we're looking to launch more towards the end of the year. One of the interesting things as I see this every now and then in the media about the controversial data of of ceramolone because 6 out of 7 trials were positive. Folks, when we were developing Paxil years ago, we had to do 6 Phase 3 studies to get 2 that worked. There is an incredible placebo effect here, which is why so many companies actually abandon mental health. So when I saw 6 out of 7, I said, well, this is absolutely terrific.

Speaker 3

And so I think there is quite an exciting opportunity here. We're not going to necessarily go after every type of patient and we're doing a lot of market research today. We're finishing the SHORELINE study and that will inform as about who is the right patient for this. And obviously, the label will inform who we are interested. But there's a lot of unresolved symptoms of depression out there.

Speaker 3

MDD patients with elevated anxiety, we won't clearly have an anxiety indication, but that is an area of MDD patients that we're going to be focusing on and those who are adherence challenged. Going back to existing drugs, I'll just say, obviously, Biogen had enormous success with SPINRAZA. But when you look at it, there are still a lot of potential patients who haven't been treated, adult patients and as well as pediatric patients. And we're going to have a fresh look at how we can improve the coverage of this product. Obviously, it's an intrathecal which is not necessarily the most convenient.

Speaker 3

You may have seen we've just done an collaboration with Alcyon to have a new device That would make this more convenient for patients who are not wanting to go through the numerous lumbar punctures. We are looking at costs that is looking at the profitability of our MS franchise. Can we shift some of these costs to supporting our new product launches. We have a biosimilars business, an important business. This is part of the way that we create the economies for the healthcare before new businesses, but we are looking at whether we can do more with that business or maybe whether others could should own this business.

Speaker 3

We're prioritizing the near term opportunities and really looking at our cost base on a systematic basis. Priya is going to talk about the risk profile and productivity of the R and D pipeline. As I mentioned earlier, we have appointed Priya as Head of Development. I'd like to Take the opportunity to congratulate her on that. We're also looking for a new Head of Research.

Speaker 3

While we have a lot going on, We'll continue to evaluate external growth opportunities. And so I think with that, Priya, why don't we talk about R and D?

Operator

Thank you, Chris. We are advancing lekembi with Eisai as a foothold in Alzheimer's disease. As you heard from Chris and Zoran alone with Sage, both as key late stage assets, but also as growth drivers. With Sage, we also announced the FDA acceptance of zuranolone in MDD and PPD as priority review. The PDUFA date is August 5.

Operator

To the priority review is granted by FDA to applications for medicines that if approved would provide significant improvements in the effectiveness for safety of the treatment, diagnosis or prevention of serious conditions. Beyond these developments, we're also making progress across R and D reprioritization. And today, I will share a few highlights from some of our pipeline programs in Alzheimer's disease, to lupus and ALS. We are advancing a broader Alzheimer's disease pipeline as you heard from Chris. And we have initiated the Phase 2 CELIA study of BIIB080 in early Alzheimer's disease.

Operator

Prior clinical results, including those from our own Phase 2 gosrinumab, suggests that targeting extracellular tau alone is insufficient to affect intracellular tau tangles. BIIB080 is targeting tau mRNA to reduce all forms of the tau protein post translation. In preclinical studies, We've seen that ASO knockdown of the tau in the transgenic mouse model of neurodegenerative tauopathy to Reversed Tau Pathology, Prevented Hippocampal Volume Loss and neuronal death. This here illustrates the Phase Ib study results of BIIB080 in mild AD. BIIB080 was generally well tolerated, and we observed a time and dose dependent reduction in CSF total and p tau.

Operator

Total tau continued to decline 16 weeks following the last dose with a 50% reduction from baseline. We were encouraged by this early data and we look forward to sharing data details from this 1b study at ADPD next month. As I mentioned, we have initiated our Phase 2 celia study in 2022. It includes several dosing paradigms, pre doses and every 12 or 24 weeks dosing. And assessments will evaluate multiple aspects of Alzheimer's disease: cognition, function and biomarkers.

Operator

To the call. We believe that Celia has the potential to generate important learnings regarding the role of tau in Alzheimer's disease. Moving on, Biogen has leveraged a very strong scientific expertise in immunology and this is how the MS franchise was born. I'd like to discuss our 2 Phase 3 lupus programs next. First is daprilizumab pegol, which we have in collaboration with UCB currently in Phase 3.

Operator

We also have litafilumab or BIIB059, our wholly owned anti bdCA2 monoclonal antibody. Both our potential 1st in class molecules in SLE. SLE is an autoimmune disease that can affect multiple organs and can lead to severe organ damage and morbidity, especially amongst the non Caucasian patients. To letifilumab also has the potential to be a 1st in class treatment for CLE. CLE or cutaneous lupus erythematosus is a skin based autoimmune disease and can exist in the absence of systemic manifestations.

Operator

Chronic CLE is associated with severe skin damage and impaired quality of life. No new treatment approved specifically for CLE in almost 17 years. The CLE part of the Phase II LILAC study met its primary endpoint and the results were published last summer in the New England Journal of Medicine. Based upon these encouraging results, we initiated the Phase twothree to Amethyst study of litifilumab in CLE. Lupus disproportionately impacts underrepresented populations and we have set enrollment targets in latifilumab studies to reflect this high prevalence in African American and Hispanic to our Latino communities.

Operator

Next, I will discuss ALS. ALS is a devastating progressive neurodegenerative disease. SOD1 ALS is an ultra rare genetic form that affects approximately 330 individuals in the U. S. While the VALOR Phase 3 study of the first one in SOD1 ALS did not hit the primary endpoint.

Operator

We have published our 12 month data from both Valor and its open label extension in the New England Journal of Medicine last year. In these results, We observed a sustained reduction in neurofilament, which is a marker of axonal injury and neurodegeneration in individuals who initiated Tofersen earlier. We also observed a slower decline in measures of clinical and respiratory function as well as strength and quality of life. With the PDUFA action date of April 25, 2023, Biogen has the potential to deliver genetically targeted therapy to people suffering from SORT1 ALS. To FDA recently announced the March 22, 2023 date for the advisory committee meeting for Tempurcell.

Operator

To EMA has accepted the marketing authorization application for TUKORCIN for review in the European Union. Moving on at a higher level, as Chris mentioned, our goal is to rebalance the R and D pipeline. In this context, we have developed a framework to guide our decision making and the focus who is on the pre proof of concept programs. For example, we are investing to win in programs where we have a high degree of with biological confidence such as BIIB080, while we continue to apply a systematic data driven approach in this program to learn and derisk. We may also choose to discontinue development for some programs based on their regulatory development or commercialization challenges.

Operator

Examples of recently discontinued programs include bixotrigine in neuropathic pain and oralabrutinib in MS. In parallel, we have several focus areas to help increase the productivity of our pipeline and decrease to risk. 1st is to de risk and improve probability of success in the pre proof of concept portfolio. 2nd is to enhance the role of and capabilities for translational science and importantly, our overall focus on value generation versus achievement of operational milestones alone. In conclusion, with key assets in Alzheimer's disease, depression and lupus.

Operator

We believe the Biogen pipeline has potential to deliver significant growth over the medium and long term. I will now pass the call over back to Mike.

Speaker 2

So thank you, Priya. I will now go through our 2023 guidance ranges and talk about some of the key assumptions, and then we'll open it up for questions. We expect a full year 2023 revenue decline in the mid single digit percentage range as compared to 2022 reported results and full year 2023 non GAAP diluted earnings per share of between $15 $0.16 There are several dynamics that we expect in 2023 that I'd like to highlight. First, our guidance assumes a favorable decision by the Court of Justice of the European Union relating to regulatory data protection for TECFIDERA. And that's currently expected to be on March 16, as I mentioned earlier of this year, although we obviously cannot predict the outcome of that.

Speaker 2

This guidance also assumes modest end market revenue for lekembi in 2023 with commercial expenses commercialization expenses exceeding revenue and Biogen will record its share of net commercial profits and losses for Lekembi in the U. S. As a component of total revenue, and we do expect this to be a headwind to our revenue in 2023. Just as a reminder, In 2022, we amended our collaboration agreement with Eisai for Ajeihelm. And as a result, we will have sole decision making and commercialization rights along with the substantial majority of the economics beginning in 2023.

Speaker 2

Eisai will receive a tiered royalty and will no longer share related to Aduhelm and this does result in 2 important considerations for 2023. First, we expect to incur approximately $150,000,000 to $200,000,000 of excess capacity charges in 2023 and all of that will be borne by Biogen. In 2022, we incurred $119,000,000 of idle capacity And of that amount, dollars 55,000,000 was reimbursed by Eisai. Our cost of sales as a percentage of revenue as a result of product mix as well as the dynamic that I just described. We expect this pressure on cost of goods sold to be particularly pronounced earlier in the year.

Speaker 2

The second result of the amended agreement with Eisai is that we will no longer be sharing Aduhelm to R and D costs and this is expected to create an increase of approximately $100,000,000 in R and D expense in 2023 as compared to 2022. Full year operating expenses, which are comprised of both SG and A and R and D expense will reflect our previously disclosed $1,000,000,000 of cost reduction measures, and we expect that approximately $300,000,000 of these cost savings will be reinvested to support the launch of zuranolone and other new products. So we expect that this will result in $700,000,000 of net operating expense savings relative to full year 2021 operating expenses, which were approximately $5,200,000,000 We are continuing to monitor potential supply constraints for IMRALDI and our guidance does not assume any stockouts, but this does remain a risk. There are also some key seasonality dynamics that we'd like to note. As a reminder, Q1 tends to be seasonally weaker, a weaker quarter as compared to Q4 for our MS business in the U.

Speaker 2

S. And that's due to channel dynamics and higher discounts and allowances. SPINRAZA benefited in Q4 of 2022 in part due to the timing of some shipments. And additionally, as a reminder, the royalty rate for OCREVUS resets at the beginning of each year and this rate increases as sales levels increase throughout the year. We also expect that our operating expenses will be higher earlier in the year given that some of our cost savings initiatives will take time to materialize over the course of 2023.

Speaker 2

And of course, as always, we assume that foreign exchange rates as of December 31, 2022 will remain in effect for the year net of our hedging activities and I would refer you to our press release for other important guidance assumptions. Before concluding, I want to highlight a few of the key accounting considerations for lekembi and zuranolone. And now that Lokembi has received accelerated approval in the United States, Biogen's 50% share of net commercial profits and losses, which includes in market revenue less cost of goods, royalties and SG and A will be reflected as a component of total revenue. As I mentioned, we expect this to be negative in 2023 as we expect that commercial expenses will exceed revenue. Outside the U.

Speaker 2

S. Our 50% share of commercial expenses will continue to be recorded within SG and A expense until Lekembe is approved on a region by region basis. Separately, Biogen's 50% share of Global Lekambi R and D expenditures will continue to be reflected within R and D expense and this is both before and after approval. And finally on Lecambi, Biogen is manufacturing Lecambi drug substance in our Soliturn, Switzerland facility. We capitalize inventory until it is sold to Eisai, at which point we will recognize contract manufacturing revenue and contract manufacturing cost of goods sold and that will be at a minimal gross margin.

Speaker 2

Zuranolone is also a fifty-fifty profit share in the U. S. With our partner Sage Therapeutics. Prior to regulatory approval, we will record our share of R and D and SG and A expense in their respective line items, net of reimbursement to or from Sage. After U.

Speaker 2

S. Approval, Biogen will record 100 percent of ziranolone product revenue, cost of goods and SG and A, and then we will share Sage's 50% of profits or losses as a component of Biogen's collaboration profit sharing line. So in closing, our number one goal is to return Biogen to sustainable growth. We believe that the potential launches of Lokembi and zuranolone along with the rest efficiency and remain committed to creating long term value for our shareholders. And with that, we'll open up the call for questions.

Operator

Thank you. Your first question comes from the line of Salveen Richter of Goldman Sachs. Please go ahead. Good morning. Thank you for taking my question here.

Operator

Maybe a question of whether you can lay out potential timelines for the NCD reconsideration for lekambi. Historical precedent suggests This could take about 9 months, but when is the soonest this process could start? Could it start pre approval? And when will we know when the process has been initiated? Thank you.

Speaker 3

Thanks for the questions. Look, I'm not so sure, first of all, that precedent is going to really matter here. I think this is an unusual set of circumstances. And so There are negotiations and discussions ongoing between Eisai and CMS today. No, CMS could decide whatever.

Speaker 3

But the feeling is that they're going to wait until there is a traditional approval And then we'll see. Will there be a registry? Won't there be a registry? We just don't know at this stage. What I would say is But I think you're seeing a much different tone in the broader community than we had with Aduhelm.

Speaker 3

You've seen the American Association of Neurologists write to CMS to support reimbursement. You've seen members of Congress. I can tell you that the neurology community look at broadly look at the CLARITY data As being very compelling in terms of the impact. Obviously, CMS makes its own decisions, but I think there's a growing consensus that this is a medicine that is very much needed by a broad population and ASI has guided to their hope that there would be this broader reimbursement once they have traditional approval.

Operator

Our next question Thank

Speaker 5

you. Thank you for taking my question. And Maybe a question on expense cuts. So I know earlier this year, you talked about expense cuts. And I mean, if you do the math, It's very clear that for the product portfolio, the expense base is very high.

Speaker 5

Can you talk about I mean, have you thought about your target operating margin profile long term. And how much more cuts can you do? And any time lines when we could hear about this? Because you also talked about almost $200,000,000 of you can't even spend here. You said that you will probably prioritize and figure out whether you want to keep spending that money or not.

Speaker 5

So can we talk a little bit about the timelines of that now that you are in the business review mode?

Speaker 3

Thank you. In OpEx, you've got 2 big buckets, right? You've got R and D and you've got SG and A. In R and D, we are looking at this whole prioritization exercise. And that means if you want to save money to a degree, you have to you may have to cut some programs.

Speaker 3

And that's not something that you want to do quickly. You need to go and look at each program thoroughly, determine probabilities of success, There is an infrastructure element to R and D that we will be looking at as a matter of priority. And then you have SG and A. And within the sales and marketing, obviously, most of that spend is really going to the MS franchise. Now the MS franchise still supports most of our revenue in the business.

Speaker 3

And so one has to be careful about how much We want to reduce that spend by, but clearly that's a declining revenue base. And so I think what you're really going There's 100 of 1,000,000 of dollars going between Eisai, Sage and Biogen behind the pre launch activities this year for the KemBI and zarenolone. And those are obviously strategic products for all of the companies and we really need to support the launches. But we have to be find the right balance and not seeing a decline in MS sales beyond what we already see. And then there is G and A and we will be taking a close look at that this year.

Speaker 3

So you're going to see some reductions in cost, There's also going to be some new investments. And so it's a little hard to say at this point, where we're going to end up on margins. But If you strip out the royalty and collaboration income and do the OpEx to sales ratios, we're clearly higher and most of our peer companies. And considering that we have a fairly mature product profile of high volume Of high value, low volume products, we should be more profitable. But the company has We've taken $1,000,000,000 out, so that means more cost savings have to be done thoughtfully.

Speaker 3

So we'll be giving you updates throughout the year on that. But we are conscious that the cost base who needs to be more productive than it is. On Aduhelm, Aduhelm will We will be looking at the EMBARK data, which is long term. That will to give some information about not just for Aduhelm, but also how we think about the longer term treatment of amyloid reducing antibodies. We also need to see exactly what the landscape is.

Speaker 3

What I can tell you is There is no commercial effort behind Aduhelm. Our focus is on Lekembe. We believe that is the product that is most appropriate for patients. We do have a commitment to the FDA to do this confirmatory study. So we have to think through that carefully.

Speaker 3

But I just want to be clear that from a strategic point of view, McKembe is our absolute priority and Andrew Helm is not being actively commercialized anywhere.

Operator

Our next question comes from Colin Bristol of UBS. Please go ahead.

Speaker 6

Hey, good morning and thanks for taking my questions. One for Chris. In terms of your ongoing view of The business and the pipeline, how should we be thinking about time line just in terms of the potential for strategic actions with Abu Health? And then just more broadly in terms of business development when you sort of clearly identified the targets that would be potentially willing to move forward. And then just within this question, could you just characterize your ongoing interest in biosimilars?

Speaker 6

Thank you.

Speaker 3

So on R and D, And you have a number of projects that have been ongoing for a number of years. We have a number of Products actually in Phase 3 that are actually proof of concept studies. There are at least Not even including Aduhelm, we have 3 products in development where we did not have safety or efficacy data out of a positive Phase 2. So I think we need to think carefully about each of those programs. It does take some time.

Speaker 3

And there is always a Question of how much do we have to spend to the next milestone and is that really worth it? Can we think about different ways of doing the study? Can we derisk these? So that will probably take us through to the summer before I think we can really make too many decisions on that front. Biosimilars, it's an extremely strong team and they've built a successful business.

Speaker 3

But I look at Biogen as a company with innovative medicines. We're not a huge company By any means, and there needs to be a focus. So we are looking at what's the right business model for it. It is It is a successful business. It's an important business for society, but we need to think about where we put our resources.

Speaker 3

When you look at the cost base, it's not just a question I found in the company about how much we spend, but how we spend it. And there have been a number of pet projects around and other areas where we're spending money. And I think one of the things I'm really trying to drive is focus in the company. What really matters? What's going to grow the business?

Speaker 3

And how do we align our resources behind that? And whatever is not one of the major growth drivers, I think We have to look carefully at whether we continue to either to support that business with resources or we think about other options for some of those businesses.

Operator

Our next question comes from the line of Umer Raffat of Evercore.

Speaker 4

Hi, guys. Thanks for taking my question. I wanted to touch up on the infusion capacity a little bit in a little more detail. I feel like we've talked about it several times that infrastructure needs to be built out.

Speaker 7

But could we quantify, for example, of

Speaker 4

But could we quantify, for example, of the 100 ks patients number mentioned in some of the prior press releases for year 3, how much of that exists today? And could you take an interim look in your ongoing early AD study where you have a monthly arm To perhaps update the label towards monthly. Could that happen anytime soon?

Speaker 3

So on the capacity, obviously, Biogen had worked quite made quite a bit of progress on that for the launch of Aduhelm. And so I would say we're probably in better shape today than when we were at the launch of Aduhelm. Nonetheless, It's not like there are a lot of empty infusion centers waiting for Alzheimer's patients today. So there is going to have to be to continue the investment and it will take time. And I think one of the reasons that we have guided to 100,000 patients is that It's just going to there are going to be constraints to the system.

Speaker 3

There's not a lot of point talking about what's the potential, how many Alzheimer's Patients out there and how many are eligible. There are natural constraints to this. There's also going to have to be a selection of patients as to who's really the best patient to benefit from this treatment and physicians will take their time to understand to this new therapy and get experience with the drug. So it's going to be slow, steady progress. I can't give you I wouldn't want to comment today on how many sites, but it is something that is obviously a major part of this launch.

Speaker 3

That's why I say it's not really a round white

Speaker 1

And I think the other question was around potentially less frequent maintenance dosing the timeline for that. Priya, do you want to comment?

Operator

Sure. So yes, exactly right, Chris. I think we've also we also think that some of this infusion capacity could be elastic and we'll have early learning. So I think, as you said, we'll learn as we go. Two points here.

Operator

One is that to Eisai is already leading on developing a maintenance therapy. And this could be either a 4 week for a 12 week dosing paradigm. They have said publicly that they will file for this by Q1 2024. That's important. The other aspect I think that is also in development is the subcutaneous formulation.

Operator

And I think we are Eisai and Biogen are thinking about what burden would a product like Lechemvi have and how do we solve that for patients as well as providers, and that is really the strategy behind the subcutaneous development. It's being studied currently in a Phase III substudy, and it will also be filed by Q1 2024 as Isai has communicated. So I think we're trying to work from multiple perspectives here and we'll share more updates as they become relevant. Our next question comes from Evan Ziegerman of BMO. Please go ahead.

Speaker 8

Hi, guys. Thanks for taking the question. So Chris, in your remarks, you highlighted a shift in business development, whereas in the past Biogen may have been more hesitant to acquire. Where would you like to focus BD? And what size deals would you be comfortable with?

Speaker 8

Thank you.

Speaker 3

From a management point of view, you have to think about what is your what's your team good at. And What's interesting about Biogen is it's been a very narrowly focused company. They've been very good at what has been done in multiple sclerosis, for example. But you have to think carefully about how broadly you go because we are extremely good at selling high value, low volume products. And even as we contemplate the zarenolone launch, We are going to be going to a much broader population.

Speaker 3

We're probably going to have a lot more patient outreach. I think Biogen has done exactly one television commercial in its history. And that's So as you think about business development, you have to think about, okay, you can potentially look at things on paper, But can you execute well on them? Now when I look at it, I say, I'd like to be a little bit broader than the traditional neurodegenerative diseases because I don't want to abandon them by any means. But if your only business is that, you are really destined to do these long term studies that are highly costly.

Speaker 3

And Often the Phase 3 becomes the proof of concept because you can't really test these things adequately in Phase 2. And so if I sort of say, well, where could we legitimately go? Where do we have some experience? Well, we can certainly be in immunology, because I would argue that things like lupus where we already are, even multiple sclerosis is really an autoimmune disease. So I can see us branching out more into immunology.

Speaker 3

Psychiatry, we'll have one product in the bag with zarenolone. Would it make sense to expand more into psychiatry? And obviously, with SPINRAZA, When we look at how do we get more out of SPINRAZA, when you're in the rare disease business, It's different than most other businesses. Most other therapeutic areas, you go see a physician because the patients go to the physician. In rare diseases, you have to go find the patient.

Speaker 3

I remember at Genzyme, someone in marketing, teaching me very early on that Marketing strategy is looking for needles in haystack. And that actually becomes a core competency. And that's one of the areas that we have to go after. There's an awful lot of easier to find patients who are more serious and who are naturally visiting physicians, but there are, for instance, adult patients who are difficult to diagnose. And so looking at increasing the patient numbers means that we're going to have to be good at rare diseases.

Speaker 3

And Once you have that core competency, in my view, you can be in rare disease and you can be therapy or indication agnostic in that area. So that's where we're starting because I think we can execute in those areas. Could that be acquisition? Could be late stage and licensing, we could look at all of the above. And I look, Biogen hasn't necessarily looked at acquisitions as part of its growth strategy.

Speaker 3

Equally, I say I tell people, well, there wasn't a lot of point hiring me if you don't want to go do deals. So not to say we are, But I think there is now an openness within the company to at least look at it. Now as we all know, M and A is hard to execute on and get something that is truly accretive and generates a return on investment. And that's why we are really focused 1st and foremost on Driving the most that we can out of organic growth, but I would say that we are open to Anything in those four areas that I mentioned before.

Speaker 2

And I'll just quickly add, Evan, to your question on Size of deals, without commenting on how large a deal we might do or series of deals just in terms of aggregate capacity. As We mentioned upfront we ended the year with $5,600,000,000 in cash. We have more coming in from Samsung in the early Q2 of this year, and we have a modest amount of debt. So you can pretty quickly get to a close to better part of $10,000,000,000 of capacity number that we can utilize in a variety of ways.

Speaker 3

Point out the amount of money we're getting still from Samsung on the That has yet to come in.

Speaker 2

Yes, dollars 800,000,000 that's coming in April and then another 400 plus that will come in next year.

Speaker 3

As you know, firepower is not Certainly the main constraint, finding something that's worthwhile doing is the really hard part of this.

Operator

We will now move to Tim Anderson of Wolfe Research.

Speaker 9

Thank you. A couple of questions on, lekembi and the subcu. Can you just confirm what the minimum requirements are for approval of a subcu in terms of what you need to show in the data you're currently capturing. And do you think there's any meaningful risk in gathering that necessary data? To me, the long term commercial future of the brand really hinges on having a And I'm trying to gauge whether there's any meaningful risk that we should be cognizant of.

Speaker 9

Thank you.

Operator

I can take that. Thanks for that question. I think overall, I just want to reiterate that Eisai is studying subcutaneous in the Phase 3 open label extension. And actually details of that substudy are public. You can take a look at that.

Operator

ESA has also communicated that they believe that they have had the regulatory discussions to embark upon this pathway. But beyond that, it would be speculative to say what are the minimum requirements. I think we do have regulatory discussions ongoing and a lot, as you know, is always dependent on the data as it gets generated. Overall, Eisai has communicated that they expect to by Q1 2024. And then stepping back to what is the true potential, we I'll just draw us back to the data that we saw from the CLARITY-eighty study, which was, of course, utilizing the intravenous bimonthly during dosing regimen.

Operator

I think the most important part there was that we saw the amyloid reduction at 6 months expanding over the 18 month period. We had a positive primary endpoint with a highly statistically significant p value as well as all the secondary endpoints. So we believe that really CLARITY AD is quite clear in its outcome and we believe that the data are meaningful and can have an impact on the patient population. The subcutaneous formulation is really our approach to kind of thinking about this more comprehensively. So we believe as is, it has a lot of potential.

Operator

And then, of course, we'll continue to build on what is the dosing maintenance dosing as well as subcutaneous. And as Chris mentioned, what is the application of an anti amyloid therapy in pre symptomatic or preclinical Alzheimer's disease?

Speaker 3

Tim, the way I look at this is, I think what we're going to see over time is that you're going to have a plaque removal to Phase of treatment and then a maintenance. And in the short term, we can talk about potential for subcu, but really, I would say for the next 2 to 3 years, the demand for the product is probably more limited by capacity of the system to actually diagnose and treat patients. So an IV will be for the convenience of patients, but I'm not sure that short term, it's really going to have that much impact on demand. One game changer, I think, to me is blood biomarkers. If we can eliminate the PET scans and in particular the lumbar puncture, this will make it a whole lot easier for the whole medical community to at least get the diagnosis, and we can probably reduce the overall treatment cost of a patient.

Speaker 3

Those blood biomarkers have Been around for some time, but until there was a treatment, there wasn't a commercial market for those diagnostics. So to me, the biggest game changer that could occur is if we can get some of these blood diagnostics to market sooner. It's probably they're probably still a couple of years away, but they're as important in my mind commercially as a subcu.

Operator

We will now take a question from Brian Abrahams of RBC Capital Markets.

Speaker 7

Hey, good morning. Thanks for taking my question. On the kembe, as you consider the maintenance What's the right way we should be thinking about the potential balance of annual per patient price Declines versus the potential for market expansion and greater durability for chronic use. Thanks.

Speaker 3

You mean the price decline related to maintenance, is that what you're saying?

Speaker 7

I guess, how are you thinking about pricing strategically for a maintenance therapy on an annualized basis relative to the every 2 week? And How should we think about the overall balance?

Speaker 3

Again, I think as obviously we have to wait now and see the data and get approval for these things. But I think you're probably going to be in this plaque removal process and that's be every 2 weeks. As you get into maintenance, as Priya said, the dosing regimen could change. And obviously, if you were to go from 2 weeks to 1 month, that has an overall per patient cost on an annualized basis that would be So I think you'll see potentially a lower patient cost just because of the different dosing regimen over time. Shorter term, again, I think we probably have more patients out there than the system can manage.

Speaker 3

And so I don't think there's going to be that much price pressure. Once the system adapts, There may be over time, but I don't really see prices being the main aspect of this. And remember, when you

Speaker 10

look at this,

Speaker 3

I I mean, we're talking about $26,500 for the drug costs, but there's a lot more cost to the system for the treatment of the patients. A PET scan, for instance, costs around $7,000 as an example. You have the MRIs and you have the treatment. And that's why to me blood diagnostics Could play a bigger role in actually reducing the overall cost. And I think those types of things and as we move into Maintenance dosing, regimens, we may find that the average annual cost of a patient goes down, although we're not necessarily touching the price of the drug.

Operator

We will now take a question from Michael Yee of Jefferies.

Speaker 10

Please go ahead. Hey, thanks for the question. Hey, Chris, it's great to hear from you. You mentioned in the slides that you would like to improve the risk profile and productivity R and D pipeline, particularly the risk profile. And I recall In January, you talked about lower risk type projects and perhaps Biogen's to high risk, high reward, particularly for this market cap.

Speaker 10

And then going back to your prior days, you did, I think, the Genzyme deal and the Regeneron deal. So can you just comment about the philosophy of bringing in products that are perhaps lower risk, more derisked and how you think about bringing those in and acting on those accordingly and with speed. Thank you.

Speaker 3

Sure. To me, Risk management is something that is part of the day job in a pharma company. You obviously can't do anything unless you take risk. We develop products in early stage. If you're talking about Phase 1, you've got 10% probability of success.

Speaker 3

I think there's a couple of areas that we would look at. The first thing is, obviously, if you can do a Phase 2 study where you get a lot of confidence out of safety and efficacy before you go into a Phase 3 study. You have essentially at every stage of development from Phase 1 to Phase 2, Phase to the Phase 3 derisk that. We sometimes can't do it. If you look at Alzheimer's, and the development of either makenimab or aduhelm, You can start to see, for instance, that you're reducing plaque.

Speaker 3

But one of the problems we had a lot of companies had is that they didn't reduce the plaque enough. And you're not going to know whether you have reduced the plaque enough until you see a benefit in cognitive function. But you really can't do that until you go into large studies and take a long time because these diseases progress so slowly. So to me, one of the areas is that we can if you go into autoimmune diseases or you're into psychiatry, You can have a more classical drug development where you can derisk more in Phase 2. You can get a proof of concept.

Speaker 3

As I said earlier, we are sometimes doing proof of concept in Phase 3, which is an expensive way to do proof of concept. So just even thinking about moving into some of these other areas allows us to do more classical drug development. The other is, of course, that we can start to license in products and that are a lot closer to market and you're not taking quite as much risk on those. But it's really a function of when you look at it, How much are our precedented versus unprecedented mechanism of action? How much are small molecules versus large molecules?

Speaker 3

Can we do more collaborative types approaches. But this notion of always doing proof of concept in Phase III is a highly expensive, highly Risky approach. And I think having a few of those projects in our pipeline is good. Having 100% of our pipeline in Projects like that is challenging. And if you look at it, we don't really have an approval coming in our pipeline for several years yet here because we're waiting on these long term studies.

Speaker 3

So having things that read out on a little bit On a more frequent basis would be helpful to looking at sustainable growth of the company. Operator, I

Speaker 1

think we have time for one final question.

Operator

Thank you. Our next question comes from Chris Schott of JPMorgan.

Speaker 8

Great. Thanks so much. Just another one on BD. Is this something you're going to be looking to do in parallel with your strategic review and cost resizing efforts or is this a bit of longer term priority once you make whatever changes are necessary for the core business? And maybe just a second part of that same question.

Speaker 8

Given your prior comments of the narrow focus of Biogen, does that point more towards BD skewed towards either company acquisitions versus partnerships or earlier stage deals, it seems like you might want to be bringing both products as well as Kind of expertise in house, just help me a little bit in terms of like the how you think about that dynamic? Thank you.

Speaker 3

I think certainly for the first half of this year, we're focused on really reorienting the company towards these growth opportunities, looking at the cost base. We should have a new Head of Research in that timeframe, we're also in the process of recruiting ahead of BD. So to me, this is sort of something that we start to look at in the second half of the year. As you know, it takes a while to go find things. You got to look at a lot of things before you do something.

Speaker 3

So even if you decide you want to something next year. You really have to start looking now. In terms of what we're looking at, look, it could be all of the above. To the degree that we get comfortable with the launch trajectory of Lekambi and zarenolone, you could argue that the bankers like to refer to this desperation factor. I would argue that we don't have a high desperation factor.

Speaker 3

We actually have a lot that we can do within the company. I think it's healthy to be looking outside and to always have options because In this business, nothing ever goes completely to plan. But we have the time to look and make sure that whatever we do is going to be value added. And I think it could be all of the things that you've mentioned.

Speaker 1

Okay. With that, I think we're going to conclude the call for today. Thank you everyone for joining us.

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