Biogen Inc. (NASDAQ:BIIB) Morgan Stanley 21st Annual Global Healthcare Conference September 11, 2023 10:40 AM ET

Company Participants

Christopher Viehbacher - CEO

Conference Call Participants

Terence Flynn - Morgan Stanley

Terence Flynn

Great. Well, thanks for joining us, everybody. I'm Terence Flynn, U.S. biopharma analyst here at Morgan Stanley. We're very pleased to have Biogen. Joining us today from the company is Chris Viehbacher, CEO. Chris, thanks so much for being here.

Before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. Well, thanks so much, Chris. Really appreciate the time today. I know it's a busy time at Biogen. Maybe to start, I thought we could talk about what some of your key priorities are over the next year?

Christopher Viehbacher

Thanks, Terence. It has been a busy -- I think it's eight months, maybe nine months now. I think I've certainly learned when I was at Sanofi, you want to get changed early in your tenure because it actually takes time to pull-through and that's kind of when the organizations are most open to change. We started-off with people, products and pipelines and that merged into five priorities.

And I think we've made really good progress on all five. One was really reorienting the company. When I got there, everybody was still really focused on the MS franchise and that we had LEQEMBI. We are hoping to launch zuranolone and so that made a shift in, not only focused, but also the development of new capabilities.

We had a cost base that everybody in the industry were saying was way too high and we had to address that. We have had five heads of R&D in 10 years and so that has led to a big mishmash in the R&D pipeline and we needed to sort that out. We do have a couple of existing products that have patent covering into the mid '19 -- 2030s, which is VUMERITY and SPINRAZA. So, looking to certainly stabilize and get growing SPINRAZA again and really taking advantage of VUMERITY, which is really now the only branded product in the oral space.

And then finally, looking at de-risking our growth path through external development and, of course, we've announced the acquisition of Reata, so actually think now we've got all the elements to really grow Biogen sustainably. And certainly, as we look over the next three years, I think we can aspire to substantial growth. Of course, I learned early-on in my career strategies, 10% execution is 90% and so that's what we're really focused on now.

Question-and-Answer Session

Q - Terence Flynn

Okay. Makes sense. What as you look out three years, again obviously the sustainable growth is an important piece of it, but what else do you hope to see here, what do you think the company will be positioned over that time period after some of these change plays out?

Christopher Viehbacher

Yeah. I think one of the things I've -- I think we've been trying to do this, let's get the company because we've had this melting iceberg. Let's get the company back on a growth trajectory and I think we've got all the elements certainly with the cost reductions we had in LEQEMBI even to a degree of PPD for zuranolone. But I'm going to start spending a whole lot more time is with Priya and our newly announced CSO, Jane Grogan really thinking about the pipeline because I think what I'd really like to see happen is that we are growing strongly into the next decade.

And I think there are some very good assets. Priya has done an amazing job of really leading out some of the non-value added projects and putting our resources behind things that we really like. BIIB080 which is our ASO for tau, for example, I think will see some very encouraging new data at CTAD on that. We've got a couple of products in lupus. One Phase III, we'll see data in the middle of next year. We have another one for cutaneous lupus. There is a product for generalized or sporadic ALS, another ASO and another ASO for Angelman's. So, I think there are already some assets in there.

With Adam Keeney, our new Head of Corporate Development, I think we're going to be looking at doing more business development. And then Biogen's research has not been the most productive. In 45 years, actually litifilimab for cutaneous lupus and Aduhelm were really the only two products to make it in the development of any significance. Jane comes as an immunologist. And I'd specifically wasn't looking for a neuroscientist and so that's an opportunity also to start reshaping the company over the longer period of time. So, it's certainly going to be looking to see how do we -- how do we really transform Biogen into a scientific and research powerhouse as well as a commercial one.

Terence Flynn

Okay. And with that is it fair to think that immunology is going to be a key part of that diversification? Obviously, you have extensive legacy in neuro, again CNS, but as you think about this diversification pivot, is it fair to think immunology is going to be a big part of the story on the forward?

Christopher Viehbacher

Yeah. With one analyst report over the weekend, I thought actually it's something I certainly would agree with. I think we got into neuro through immunology basically within that. I mean, MS is really an autoimmune disease and we're in things like lupus and ALS. So, I think it's a natural fit. Immunology is quite big and, of course, inflammation is popping up everywhere as a problem, even in the Reata drug actually. So, I think -- I think we can actually build upon immunology.

I don't see us -- just because using (ph) with Genentech, we're not -- we're not going to get into oncology, that's for sure. But I do think the rare diseases, parts of immunology which is pretty vast area, probably now that down to neuroimmunology, still the neuropsychiatry and obviously Alzheimer's because with Alzheimer's, we aim to be with our partners, a leader in Alzheimer's and that can be only the first step in that journey.

Terence Flynn

Okay. Great. You also mentioned looking externally -- you've the Reata acquisition, but how do you think about business development from here? Is this -- does this kind of put a pause on activity given the size of that integration and you have a launch to think about or is there something you can parallel process and we should still expect some normal course of business development here?

Christopher Viehbacher

I think my CFO will say that they'd probably spent the budget on acquisitions for a while. So, I think we will shift a lot more to probably more early-stage business development, Phase I, Phase II. I also want to transform our research organization into a more collaborative organization. It is to a degree, but we're in the most prolific biotech communities in the world and I think we can do an awful lot more with equity investments and collaborations in an early-stage in research. So, I think, Adam is going to be pretty busy with that.

Terence Flynn

Okay. Maybe the other piece you talked on is just the fit-for-growth strategy here and rebasing the cost structure of Biogen more along the peer group, having one of the pushbacks I hear from clients is just how can you guys do that and also invest in both the LEQEMBI launch and the Reata launch and still come out with a good commercial outcome, I guess. So how do you think about that side of the coin is not just taking the cost-down, but the investments required to really make these launches a success?

Christopher Viehbacher

I think I keep telling my team one of the most underestimated words in any book on leadership you'll ever read is the word and. It's being able to do and is really what separates people from being really terrific or not. You have to manage the short-term and the long-term. You have to manage innovation and you have to be cost-effective. You have to manage your cost and you have to launch successfully. And yet there is an awful lot to how you do that. We have actually had surprisingly some investors say are we cutting too much?

And I would assure everybody that that is certainly not the case. Less than, I think, 10% of the head count that will depart is actually customer-facing. The reality is, is that when you have companies that have an awful lot of money and money was certainly very present. When we had TECFIDERA, we had $5 billion of profit more in 2019 than we have today. And when you have a lot of money, you get into an awful lot of activities and a lot of layers of management. We have an average span of control of free.

So, part of this is reducing cost to be more in-line. All we've done is benchmarked with our peer group. We're not looking to be best-in-class in cost-cutting, but we do have to be competitive. But there's also a question of agility. If you have a span of control of three, someone has passed their boss who ask that their boss. When I talk to biotech companies who want to do business development with us, they say, boy, Biogen loves to do an awful lot of meetings.

And if you have a lot of people, you have to do an awful lot of meetings. And part of it is because nobody can make a decision. And so this is about empowerment, it's about agility and it's also about retooling some of our capabilities because we have been in really essentially a multiple sclerosis company for 45 years. So, this is really an opportunity to reengineer and transform the company and it also has a transformative effect on our bottom-line.

Terence Flynn

Okay. Great. Appreciate it. The other topic that I think comes up more recently, just at Eisai relationship. And so maybe give us an update in kind of where that stands? And as you think about the forward progress of that relationship, again you guys have other assets coming up through the pipeline. So like where do those fit-in the broader scope of strategic direction of the Eisai collaboration?

Christopher Viehbacher

It's quite an interesting relationship with the company who has been working together for eight-nine years now. And when you think about the scale of the investment that these two companies undertook in developing these Alzheimer's antibodies, you're thinking about we literally spent billions on just the clinical trial development cost between Aduhelm and LEQEMBI plus spend another couple of billion on a factory to make it. And so these were big bets for companies that are certainly nowhere near the size of Pfizer.

And so when you're making those big bets, there has to be an awful lot of trust in each other. Obviously, the Aduhelm situation was pretty unfortunate to say the least. And I think that strained relationships, but I would say today is that relationship is driving again. I've known the CEO of Eisai for many-many years. And that's an important relationship because of the way Eisai also operates. We have our governance teams, but we talk regularly multiple times a month. And what is important though is this launch of LEQEMBI is pretty much unlike any other launch I have seen.

I've talked about the fact that this is only the second time in my career that've actually seen the creation of a whole new category. And the relevance of that is pretty important because most times you launch a drug, you've got patients in a doctor's office who are being treated with something. It may not be very good, but they are there. Here we're talking about now neurologists who are already busy doing a lot of other things. And suddenly now we've got a wave of patients who are wanting to come in. And I think about what that means in the doctor's office, you've got now first to an assessment of this patient and to see whether they've got MCI or mild dementia.

And they have to make sure that the mild dementia is actually caused by Alzheimer's and not something else. So you're talking at least an hour of time in the physician office, probably several weeks to get an appointment to see one. Then the physicians going to say, am I going to send them to a PET scan? Well, what about the reimbursement of the PET scan? It is reimbursed, but there's still some confusion out there in the marketplace or I go to have a lumbar puncture? And I'm going to explain to the patient about the lumbar puncture, which as we all know going to not a picnic. Then we got to find the infusion centers and I've got to monitor the patients on with MRI.

So this is logistically a major exercise. And we're seeing variability out there. You've got centers like Duke that have been way ahead of the game compared to everybody else and are really moving forward on that. Other centers are catching-up individual practices. This is something that they're all working through. So there is an element of -- we need the infrastructure to grow, but we need all of these processes to actually take place. There certainly seems to be demand there. I know -- I think we're confident in the demand. I think we're confident in the fact that physicians actually want to treat these patients.

The CMS has moved quickly actually. And that in some ways, it shouldn't, but kind of caught everybody off-guard because now we can go. There is no limitation and the registry seems to be pretty easy to operate. So this is now a question of filling the pipeline and pulling the patients through. And ultimately, we will see that. And ultimately, all of these physician practices will get good at this and understand this. But it is a heavy-lift at the start. And I think we'll start to see that as we get through towards the end-of-the year. I think nothing that we're seeing says that the Esai guidance can't be met which is 10,000 patients by the end of their fiscal year, which is the end of March.

Terence Flynn

Yeah. Okay. What -- I mean, as you think about the lift requirements, I mean, how -- maybe any metrics in terms of progress that you can provide us with? If you think there are like number of centers that are up and running? I mean, we talked to a vertically-integrated centers, community practice not like do, but there it's pretty easy, like they have everything in-house.

It sounded like it takes about three weeks to get a patient on therapy or infuse. They can do all the scans. But you just talk through all the logistics. And if you don't have everything in-house, you got to coordinate across all these. So, how long do you think that process will take for the majority of your centers before you can see the majority of those centers have a protocol in-place so that they are up and running and it's a three-week process or something to get a patient on drug?

Christopher Viehbacher

Well, I mean, the key metric really is site activation and the site readiness. And we'd gone out to see 700 centers today going through the P&T committees, so they're getting the reimbursement and laying through all of that. I think the field force is just really busy on all of the logistics and getting that through. So, I think it gets more-and-more and that's why I think in some way it's having the target of 10,000 at the end of the first quarter. It's more of a relevant benchmark because we know it's going to be choppy up before that and there'll be some centers that are off to the races and some that will take longer and it's kind of hard to predict to be honest how fast that's going to go.

Terence Flynn

Okay. Understood. And one other question we get is just obviously you have the JV across both companies. How much visibility on a weekly basis do you have in terms of all these key metrics? Like are you getting the data real-time like Eisai is or are you guys getting it on a lag? Again, I think that sort of trying to understand like how much data are you getting in and at what frequency from a launch perspective?

Christopher Viehbacher

So, I think the collaboration has been great now with the company and we have actually worked with Eisai, really leveraging the experience of Aduhelm. Although Aduhelm never really got out there in the marketplace, Biogen actually has all this expertise of how do you assess a site, what are the key metrics that we need to look at? We actually use the consulting firm to go back and actually capture the learnings and we have shared those with Eisai. So we've been working with them on the development of the key metrics that we want to launch and share. It is still very much news from the field that really is driving this. But as I say, we don't really see anything on the demand-side here. It is really the logistics question.

Terence Flynn

Okay. Got it. I guess the other relevant question we're getting is just around the subcu formulation obviously. I guess, I under appreciated the once monthly dosing versus every other week dosing that donanemab has as being maybe somewhat of an advantage. You guys have the advantage of maybe less ARIA (ph) with LEQEMBI. And so a physician survey we did suggest about equal market-share over a couple of years. And so, I guess, maybe what the importance of subcu and are you confident in terms of the path-to-market for the subcu formulation?

Christopher Viehbacher

Yeah. I think you have to step-back and say what's the treatment of those -- how the treatment of AD is really going to evolve, right. So, remember until we really had the CLARITY study, we haven't really had the definitive evidence that actually reducing plaques had a benefit on cognition, right. So everybody is looking at kind of this 18-month period and we reduced the plaques. And we only studied in patients where we actually had symptoms. So we started with what we thought were early-stage patients with MCI or early dementia. Then, in actual fact, those are early patients at all.

And then, now the immediate question is when we remove the plaques, what happens then? The plaques come back. And so I think we're going to see a complete change in the treatment paradigm over years where on the one-hand, you're going to see a maintenance market, you're going to have a plaque clearing market. And we have this AHEAD study that's going on. What we really want to do is actually get people before they're symptomatic. There are probably people sitting in this room who have plaques forming in their brains and they don't know it, right. And that's where also the development of the blood diagnostics will help. There is -- there are some neurologists who are saying that we'll probably have p-tau in the normal blood bank at [indiscernible] that we all do when we go in for annual checkups.

So when you put that in that context, the subcu becomes quite important, right, because I think it's less important if you're looking at that plaque clearance phase. But if you're going to be on this drug potentially for multiple years, then the subcu is clearly an awful lot more convenient. So the intent is to, to have a filing by the end of Q1 of next year and doing all the work for that. And I do think though, you're going to see different patients at different stages.

And I think there is -- first of all, there's more than enough market for two drugs and exactly how they work and where they're used is going to evolve. Remember, right now, demand on that has a very limited space of time in which it can work. So that whole spectrum that we just talked about, donanemab isn't really going to play. Now Lilly, of course, isn't sitting still. They are thinking about that two and they have other antibodies that are coming along.

Terence Flynn

Okay. Makes sense. Again, you mentioned the blood-based diagnostic obviously really important when you think about the longer-term, even diagnosing earlier in the treatment paradigm. So what's the best guess in terms of when something could be available on that front?

Christopher Viehbacher

Blood diagnostic?

Terence Flynn

Yeah.

Christopher Viehbacher

Well, I mean, they are available now, but they haven't really been validated. In an ideal world, we'll get them validated to a point where we could replace the PET scan and the lumbar puncture because that would have both a patient convenience, but also a cost benefit for the whole-system because in addition to the drugs, you've actually got quite a lot of ancillary care. And that would also give you the confidence to actually diagnose someone pre-symptomatic. Now, we are using the CN2 diagnostic actually in the AHEAD study to help find patients. But, of course, that's still being validated with PET scans.

Terence Flynn

So would that -- so would that be the first validated dataset that we should think about it, I guess?

Christopher Viehbacher

Yeah. I think there are all of the diagnostic companies are now working. I mean, the diagnostics has been around, but until you actually had a treatment, there was no commercial market for the diagnostic. Now there is and I can tell you Quest and LabCorp and bunch of other companies are all scrambling to get the data for these diagnostics. But realistically, it's probably still a couple of years before we see fully released.

Terence Flynn

And one more on the imaging side is the on the PET scan reimbursements. So, I know that NCD was revoked and so now it's at the local MAC level. And I know each -- I forgot, I think it was 14 macs around the US, but each has to kind of make an individual decision. Is that process fairly far along so that PET is not a kind of gating item anymore on the reimbursement side?

Christopher Viehbacher

That's where there is still a little bit of a confusion. I mean, our understanding is certainly one PET scan in the lifetime is reimbursed and it -- because it's also required under the terms of the LEQEMBI reimbursement. Separately, the PET scans are controlled by their own and that's where there is change that is in progress, but that hasn't completely played out, so the macs don't have that ability today to do that as I understand.

Terence Flynn

Okay. Maybe just the last one on Alzheimer's space. You talked about tau is another target. You're going to have some data at CTAD. I'm assuming that's part of the strategy to stay at the forefront of Alzheimer's care. Maybe talk about where that fits into the strategy and then anything else behind the scenes that you guys are doing to make sure that you and Esai continue to be at the forefront here?

Christopher Viehbacher

Again, basically LEQEMBI is the first breach in this wall range. I mean, we've all been throwing stuff at this wall, trying to find out how do we make a difference in Alzheimer's without success. I mean 10s of billions of dollars of research and development went into trying to find something. And this is the first time where we actually saw something that actually had an impact on cognition.

But we all know that we'd like something that does even more. And so the question is can we do more with more effective antibodies? But we're already getting pretty significant reduction of plaque. So, then you start looking at other mechanisms. Tau is clearly a major factor in the severity of the diseases we know. A lot of experts out there are more excited even about tau than they are about a-beta. So that's a logical one.

Tau is -- acts intracellularly, so you need a drug that can go after this intracellular, that's why we think our ASO is very -- is very promising. But we're also looking earlier. We know that microglia and inflammation play a role, so we have a program in TREM2, for example. We are working with some of the diagnostic companies also even for tau and developing biomarkers. So, it's certainly the goal of both Eisai and Biogen is that we will maintain leadership in Alzheimer's.

I mean, there is -- I mean it's bumpy today, but this is going to be a very significant market over -- over-time and we need to make sure that there are other treatment options available to patients who do you combine the tau and a-beta at some point. We want to make sure first of all, we can demonstrate the benefit of that BIIB080 on its own, but then a logical question is does it make sense to combine? Most complex diseases you end up with combination therapy.

Terence Flynn

Yeah. Makes sense. Okay. Great. We talked about high-level Reata, but maybe just walk us through kind of timing of the deal closure? And then as we think about the commercial rollout, what are you guys doing to ensure -- commercial success is obviously this is another important launch that investor community is really focused on as we head into '24.

Christopher Viehbacher

Yes. So Reata, we -- external growth was already in our Q1 announcement about where our priorities were. Partly because we knew that both LEQEMBI and zuranolone are non-conventional launches. And we just felt that we needed something else that could help us with returning to growth. Also, it's certainly been my view coming into the company, neurological diseases are extremely important, have high unmet need, but they are very risky and very-high cost. And -- while we don't want to abandon that, we're looking to try to diversify a little bit away from that to reduce the risk of what we do to be able to do Phase II studies that actually gives you some indication of whether the Phase III is going to work or not.

So moving into rare diseases, I'm doing more in neuropsychiatry, going back to our roots a little bit in immunology. And so that was sort of a goal. And so Reata really helps us in that in building out the rare diseases. This fits perfectly with SPINRAZA. We have something like an 80% overlap for our reps to operate. And actually, it provides potentially higher sales growth in the early years. And, of course, it is a -- it's going to be I think quite profitable given that you don't have to spend as much as certainly we do with MDD. So I think it's going to be transformational financially over the coming years for the company.

People always get concerned about how you pay for things, but I was talking to one investor and she was surprised that I said, well, for me, the IRR is going to be bigger than our WACC. And that's sort of to say I don't normally hear that in the biopharmaceutical world. But this actually is in a transaction and also makes financial sense. So in terms of that, we're expecting to close in the fourth-quarter. We actually have the Hart-Scott-Rodino Day is today.

So we'll find out, I guess, today whether we get a second request or not. And if we don't, we should be able to close fairly soon. We have -- we want to do two things with the integration. One is obviously not disrupt the launch. And so I think we will have a smooth transition under Alisha's team in the US. They have about 27 reps. We'll bring all the 27 reps in and make sure -- because one of the things I don't want to do is also disrupt the success we've had with SPINRAZA.

And sales reps always go for the shiny new toy. And so I want to make sure that I don't create any kind of a distraction from SPINRAZA. And then, obviously, we're focused on the European launch. This is a product that's going to be like Biogen. This is one where 60% of the sales are in the US. This is actually one where the international aspect is important. We had 26 countries request drug from us. And so there's a real interest all over the world. Latin-America actually could be quite a significant market for us as well. There is believed to be, I think, Reata has shared that they believe there is 4,000 patients in the Latin-America alone. And then actually I think there is an interesting thing in the pipeline there.

I mean, first, if you look at this in RF2, which is the driving mechanism for Skyclarys that was also the mechanism -- the positive mechanism for TECFIDERA. And Biogen never really explored that further, but we have an opportunity to go back with that and we're looking at till we do things in ALS with this possibly with Alzheimer's. There's also a product for diabetic neuropathy.

I'm quite interested in that because I was involved with initiatives with GSK many years ago. We did lot of the same experiments. And the animal experiments actually translate pretty well in efficacy. The problem in this space has been safety, but safety looks good. So if we have that, that could actually be quite a significant opportunity for us as well. So, I think we'll keep a small unit in Dallas on the research and development time.

Terence Flynn

Okay. What -- and just maybe confidence in EU approval, I know there's been some discussion among investors kind of that front-end. So maybe just speak through next steps on the EU side and confidence in approval.

Christopher Viehbacher

Yeah. Obviously, we had access to all of the documentation with the agency under a confidentiality agreement. Obviously, we're still separate companies and I can only -- I can't say anything publicly that Reata hasn't always shared -- hasn't already shared. Obviously, the way we look at it is the primary analysis was statistically significant. And then the agency had a question around durability. And so they had this three-year extension study and post-hoc analysis, but they also stopped the drug, people started the drug.

And you see a nice consistent separation between the placebo group and the treatment group. So I think we believe very strongly in the efficacy of the drug. There is no guarantees, but I'd say we're able to do due-diligence and we're pretty confident, we can't be 100%. What I can tell you is our financial analysis use the risk-adjusted probability of success on getting approvals when we did our IRR analysis.

Terence Flynn

Okay. And can you get that IRR above WACC without EU?

Christopher Viehbacher

Pretty close actually.

Terence Flynn

Okay. Great. Well, I think we're up against time, but thanks so much, Chris. Really appreciate it.

Christopher Viehbacher

Thank you.