Biogen Idec’s (BIIB) CEO George Scangos on Q2 2014 Results – Earnings Call Transcript

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Biogen Idec Inc. (NASDAQ:BIIB)

Q2 2014 Earnings Conference Call

July 23, 2014 09:00 ET

Executives

George Scangos – Chief Executive Officer

Doug Williams – Executive Vice President, Research and Development

Tony Kingsley – Executive Vice President, Global Commercial Operations

Paul Clancy – Chief Financial Officer

Al Sandrock – Chief Medical Officer

Analysts

Michael Yee – RBC Capital Markets

Ravi Mehrotra – Credit Suisse

Mark Schoenebaum – ISI Group

Geoffrey Porges – Bernstein

Eric Schmidt – Cowen and Company

Yaron Weber – Citi

Matthew Harrison – Morgan Stanley

Terence Flynn – Goldman Sachs

Matt Roden – UBS

Robyn Karnauskas – Deutsche Bank

Geoff Meacham – JPMorgan

Operator

Good morning. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Idec Q2 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Claudine Prowse, Vice President, Investor Relations, you may begin your conference.

Claudine Prowse – Vice President, Investor Relations

Thank you. And welcome to Biogen Idec’s second quarter 2014 earnings conference call. Before we begin, I encourage everyone to go to the Investors section of biogenidec.com to find the press release and related financial tables, including a reconciliation of the non-GAAP financial measures that we will discuss today. Our GAAP financials are provided in tables one and two. Table three includes a reconciliation of our GAAP to non-GAAP financial results. We believe non-GAAP results better represent the ongoing economics of our business and reflects how we manage the business internally. We have also posted slides on our website that follow the discussions related to this call.

I would like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult our SEC filings for additional detail.

On today’s call, I am joined by our Chief Executive Officer, Dr. George Scangos; Dr. Doug Williams, EVP of Research and Development; Tony Kingsley, EVP of Global Commercial Operations; and our CFO, Paul Clancy. We will also be joined for the Q&A portion of the call by our Chief Medical Officer, Dr. Al Sandrock.

Now, I will turn the call over to George.

George Scangos – Chief Executive Officer

Well, thanks Claudine and good morning everybody and thanks for joining us today. Biogen Idec had a great second quarter, strong financial performance and several key pipeline accomplishments. So, as we recap these achievements today, we believe that our continued progress reflects the strength of our underlying business and good execution towards our 2014 goals.

Our core multiple sclerosis franchise performed remarkably well and we continue to see an increase in number of patients using our therapies. TECFIDERA continues to gain market share and we believe it’s on track to become the leading MS therapy in the U.S. The early months of our European launch reinforce our belief that TECFIDERA will continue to be a major value contributor to the company. AVONEX and TYSABRI also performed well as physicians and patients continued to look to them as the injectable and high efficacy therapies. These important medicines available to patients, we believe that we have a product portfolio that makes us the global leader in the treatment of MS.

In our late-stage pipeline, we move forward two new potential therapeutic options for relapsing MS patients this quarter. PLEGRIDY received the positive CHMP opinion in Europe and at this point, I will diverge from my prepared statements to say that just this morning as we are sitting in the room preparing for the call, we received the letter from the EU saying that PLEGRIDY have been approved. We haven’t had a chance to look at the label or any details yet, which we will do. And when we are through that, we will issue a press release, but since we are sitting here, PLEGRIDY has now been approved in the EU. We also reported positive top line results from the Phase 3 trial of Daclizumab and should all these products complete registration, we will have six important medicines that offer MS patients with different needs.

Moving beyond the MS franchise, we launched ALPROLIX, the long-lasting therapy for hemophilia B and received FDA approval of ELOCTATE, our therapy for hemophilia A. These products mark our entry into a major new therapeutic area. ALPROLIX and ELOCTATE represent the first meaningful innovations in the treatment of hemophilia in many years and reflect our mission to help renewed therapies to patients who are underserved. We believe that these therapies have the potential to meaningfully reduce treatment burden and significantly improve patients’ lives. These accomplishments are reflected in our strong quarterly financial performance with a 40% growth in revenues and a 52% growth in non-GAAP EPS year-over-year.

And as Paul will discuss this quarter’s financial performance also benefited from the approval of an agreement with AIFA relating to TYSABRI sales in Italy. We have also made excellent progress in Japan which is an important strategic priority for us as we expand our global presence. We have recently obtained Japanese approval for TYSABRI and ALPROLIX and filed a marketing application for ELOCTATE earlier this year. The expansion of our products into Japan allows us the opportunity to introduce new treatment options to patients and physicians in new regions around the world. We believe that Japan represents an attractive long-term growth opportunity for our company. So we had an eventful and productive quarter with a lot of exciting developments.

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And I will now pass the call over to Doug.

Doug Williams – Executive Vice President, Research and Development

Thanks George and good morning everyone. We and our collaborator AbbVie recently announced positive top line Phase 3 data for Daclizumab HYP in relapsing-remitting multiple sclerosis. Based on this study and previous clinical data we are working expeditiously to file an application for regulatory approval of Daclizumab. We believe that if approved, Daclizumab could be an additional effective therapeutic option to treat this heterogeneous disease. A number of our other clinical programs continue to advance.

 

In the coming 12 to 18 months we anticipate Phase 3 data from TYSABRI in SPMS as well as data from earlier stage programs including BIIB037 in Alzheimer’s disease, neublastin in neuropathic pain, STX-100 in idiopathic pulmonary fibrosis, anti-CD40 ligand in general lupus and anti-LINGO in both acute optic neuritis and multiple sclerosis. We would like to take the opportunity to review our ongoing anti-LINGO clinical studies and clarify the timing of anticipated data readouts.

The Phase 2 program remains on track and includes two studies, one in MS and the other in acute optic neuritis. We believe the totality of data from these studies would provide us with a clearer understanding of anti-LINGO’s potential in both clinical settings. The goal of the acute optic neuritis study is to demonstrate proof of mechanism in humans. We will examine whether anti-LINGO is able to protect and repair the optic nerve when given shortly after the acute damage caused by demyelinating lesion of the optic nerve or optic neuritis.

The study will examine various end points including novel end points developed by Biogen Idec. The primary end point visual evoked potential will measure effects on optic nerve signal conduction. We will also use optical coherence tomography imaging to determine if anti-LINGO treatment impacts the viability of axons in the optic nerve and retinal ganglion cells. As an exploratory end point this study includes objective and patient reported outcome measures to examine any potential benefit on visual function. The study is fully enrolled and we expect to disclose top line results in January 2015 and full data disclosure at a 2015 medical meeting.

In the second study we are evaluating whether anti-LINGO can facilitate remyelination and functional improvement in patients with active relapsing MS. Primary end point is a clinical composite measure testing various aspects of both physical and cognitive improvement. As exploratory end points we will also examine various advanced brain imaging techniques to detect potential remyelination and axon preservation as well as numerous blood and CSF biomarkers.

The MS study is designed treat patients for approximately 18 months with the primary efficacy end points being evaluated at the end of that period. There will be a preliminary look at data after all patients have reached 12 months of treatment duration to inform future study planning. Based on current enrollment rates which are ahead of projections, we expect the interim look to occur in the second half of 2015. Investigators, patients and the study management team will remain blinded in order to preserve the integrity of the ongoing study. We expect MS study results to be presented at a scientific meeting in 2016.

We look forward to sharing additional data as our pipeline advances. I will now pass the call to Tony.

Tony Kingsley – Executive Vice President, Global Commercial Operations

Thanks Doug. The second quarter marked another strong performance for our commercial organization. We think we have demonstrated that we can launch multiple products while also maximizing our base business. This has been no small feed for our company and I am very pleased with how the commercial team has executed and driven results.

Let’s start with MS. We continue to grow our MS market share through executing our franchise strategy. TECFIDERA in the U.S. continued on a solid trajectory. TECFIDERA has been broadly used across numerous patient segments, newly diagnosed switches prompted by efficacy and non-efficacy reasons as well as patients returning to the market. We believe TECFIDERA is generally viewed by physicians and patients as efficacious with an attractive safety profile and a manageable tolerability profile. Importantly, patient retention rates have been similar to other marketed MS therapies and in line with our expectations.

Outside the U.S., TECFIDERA is off to a strong start. In countries where we have launched, including Germany, the uptake for TECFIDERA has been encouraging, where we had been more cautious about uptake in Europe given TECFIDERA’s later entry in the markets, where other orals had a stronger foothold, we now believe that we see launch trajectories that are similar to what we experienced in the U.S. We are also making good progress on reimbursement. Currently, we have obtained full reimbursement in six markets and TECFIDERA is also available in a number of other countries with limited reimbursement. In the UK, we recently received a favorable pricing decision from NICE and we expect to obtain full reimbursement in most of the other large MS markets by the end of 2015.

During the quarter, AVONEX gained share among interferon therapies. As expected, injectable therapies continued to decline as patients move toward oral therapies. While global units for AVONEX declined 7% year-over-year, AVONEX has shown staying power in a dynamic market. We look forward to the potential launch of PLEGRIDY to extend our leadership in interferon. We believe PLEGRIDY has the potential to provide MS patients a combination of strong efficacy, a safety profile consistent with the MS beta interferon class and a SubQ auto injector administered every two weeks.

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Across markets, TYSABRI demand remains solid as physicians continued to choose this therapy for patients requiring high efficacy. The U.S. TYSABRI business improved as patient retention rates are stabilizing and are now similar to pre-TECFIDERA launch. TYSABRI performance in Europe was also favorable despite the increased oral competition. We continue to focus on execution and despite an increasingly crowded market we believe neurologists continue to view TYSABRI as having unique power to control disease.

Turning to hemophilia, ALPROLIX is off to a solid start since its introduction to the U.S. market in May. Our focus to-date has been in two areas raising awareness of therapy’s attributes and streamlining patient access. Our field forces build strong relationships with customers and is achieving it’s early goals of reaching frequency with hemophilia treatment centers or HTCs. As of the end of the quarter, approximately one-third of HTCs had prescribed ALPROLIX, which we believe indicates very good initial interest. Early indications suggest ALPROLIX has not faced significant hurdles with reimbursement. We have also established financial and patient support programs which have enabled a smooth initial launch. As expected, we believe the majority of ALPROLIX patients have started with once weekly prophylaxis, a significant improvement over the current standard of care of two or more prophylactic infusions per week.

Turning to ELOCTATE, we are pleased to have launched ELOCTATE in the U.S. last week with what we believe to be a competitive label. Our initial objectives are focused on extensive education to physicians, payers and advocacy groups. And we are also beginning to expedite access for patients starting on ELOCTATE. We are pleased with the performance of the commercial organization. Across an expanding portfolio of therapies, we believe we are demonstrating strong execution and solid results.

I will now pass the call to Paul.

Paul Clancy – Chief Financial Officer

Thanks, Tony. Our GAAP diluted earnings per share were $3.01 in the second quarter. Our non-GAAP diluted earnings per share in the second quarter were $3.49. I will provide additional details on the AIFA agreement, which benefited both revenue and earnings in Q2 in a minute.

Walking down the P&L let me start with revenues. Total revenue for the second quarter grew 40% year-over-year to approximately $2.4 billion. Second quarter AVONEX worldwide revenue was $774 million. In the U.S., Q2 AVONEX revenue increased 4% compared to prior year to $498 million. And outside the U.S., Q2 AVONEX revenue was $276 million, a decrease of 6% compared to prior year.

Global TECFIDERA revenue was $700 million in Q2. In the U.S., TECFIDERA revenue was $585 million. We’re very pleased with the compliance in gross to net performance which provided a benefit to revenue in the quarter. We ended the quarter with approximately 3.5 weeks of inventory in the channel, which includes specialty pharmacies and wholesalers. This is a slight decline versus prior quarter. International TECFIDERA revenue was approximately $150 million as the launch in Germany is exceeded our expectations.

Germany represented approximately three quarters of our ex-U.S. revenues. TYSABRI worldwide revenue net of hedging was $533 million in the second quarter. These results were comprised of $250 million in the U.S. and $284 million internationally. TYSABRI benefited from two events which helped the year-over-year comparison. Recall during the first quarter of 2013, we increased inventory levels in anticipation of the asset transfer from Elan to Biogen Idec. This equated to in-market revenues of approximately $26 million, increasing Q1 of 2013 and decreasing Q2 of 2013.

In the second quarter of this year, TYSABRI revenues outside the U.S. included the impact of an agreement with AIFA. Our agreement with AIFA provided for the elimination of the reimbursement limit related to TYSABRI sales in Italy from February 2013 going forward. As a result, we recorded approximately $54 million of previously deferred revenues related to the period from February 2013 through March 31, 2014.

We ended the second quarter. We recorded TYSABRI revenues in Italy at the full reimbursed price, which increased revenues by approximately $14 million versus prior trend. We continue to be in discussions with AIFA to resolve our dispute concerning the periods February 2009 to January 2013.

Nevertheless we’ll be booking revenues at the full reimbursed price going forward. Adjusting for these items, we’re very pleased to see TYSABRI experienced low double-digit revenue growth in the second quarter.

Moving to hemophilia, ALPROLIX revenue in Q2 its first quarter on the market was $10 million. Turning to our anti-CD20 franchise, U.S. profit share was $285 million for the second quarter and royalties and profit-sharing sales of Rituximab outside the U.S. were $18 million. The result was $303 million of net revenue from unconsolidated joint business.

Now turning to the expense lines on the non-GAAP P&L. Q2 cost of goods sold were $292 million or 12% of revenue. Q2 non-GAAP R&D expense was $446 million or 18% of revenue which includes approximately $40 million in milestone and other payments related to our collaborations with Eisai and Isis. Q2 non-GAAP SG&A expense was $540 million or 22% of total revenue. Our Q2 non-GAAP tax rate was approximately 27%.

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During the quarter, as part of our shared stabilization plan, we repurchased $1.2 million for a total of approximately $340 million. Our weighted average diluted shares were $237 million and we ended the quarter with approximately $2.6 billion in cash and marketable securities which approximately two-thirds within the U.S.

As a reminder, we expect to enter a period of large TECFIDERA CVR payments to the former shareholders of Fumapharm. In Q2, we accrued $150 million as we reached $2 billion in accumulative sales of TECFIDERA. This brings us to non-GAAP diluted earnings per share, which were $3.49 million for the second quarter, an increase of 52%.

Now, let me turn to our updated full year 2014 guidance. We now expect total revenue growth between 38% and 41%. Clearly, this change represents a meaningful increase from prior guidance owing primarily to the growth of TECFIDERA in the U.S. and EU, the strength of our other MS therapies and clarity on the AIFA pricing matter.

Let me provide additional color. First in the U.S. underlying demand for TECFIDERA, in addition to compliance in gross to net dynamics are all anticipated to be favorable throughout 2014 compared to our prior plan. In Europe, as Tony noted, we had originally assumed TECFIDERA would have experienced a slower uptake than the U.S. due to delayed launch. Our forecast now assumes TECFIDERA uptake in Europe similar to what we saw in the U.S. on a country by country rollout. We continue to expect Germany will be the primary TECFIDERA revenue driver outside the U.S. for 2014. And it does continue to appear that TECFIDERA has expanded the market.

Second, we believe AVONEX and TYSABRI performance will remain resilient each carving solid roles in the market. And our 2014 guidance now includes the impact of the agreement with AIFA as we picked up the previously deferred revenue and will no longer defer revenue for the balance of the year. The full year impact from the AIFA agreement is favorable by approximately $96 million versus prior guidance.

R&D expense is expected to be between 20% and 21% of sales. Our full year R&D forecast now includes greater than $150 million for the balance of the year for business development opportunities. Coupled with what we have spent on Eisai and Sangamo, this represents over $300 million for the full year in increase over prior guidance. This remains strategically important focus for the company. However, if we cannot find high quality pipeline assets by the end of the year, some of this amount may drop to the bottom line.

SG&A expense is expected to be approximately 22% to 23% of revenue. SG&A now includes increased investments in 2014 associated with the ongoing TECFIDERA and hemophilia launches. We realized this is a meaningful increase in SG&A dollars and remain committed to SG&A leverage in 2015. The result we anticipate non-GAAP earnings per share between $12.90 and $13.10 and GAAP EPS to be between $11.26 and $11.46.

Turn the call over to George for his closing comments.

George Scangos – Chief Executive Officer

Okay, thanks Paul. So, in closing, we had another productive quarter. And we successfully executed against several key objectives. We said earlier this year that our goals for 2014 were aggressive and would require focus and dedication from our employees and we have made significant progress. Well, with the second half of the year yet to go, we still have a number of product launches and pipeline milestones ahead of us. So, our efforts over the coming months will focus on the launch of four new products in two distinct therapeutic areas, a real challenge for a company of our size. We will continue to launch TECFIDERA across the EU as we work to expand marketing approval across the globe. We anticipate both U.S. and EU launch of PLEGRIDY for relapsing MS. And that’s an important part of our strategy for maintaining our leadership among the injectable products for MS.

And then the continued launch of our hemophilia products, ALPROLIX for hemophilia B in the U.S. and other countries, including Japan and ELOCTATE for hemophilia A, an important step towards revenue diversification. We also expect an important part of our long-term value creation will come from a number of mid-stage proof of biology and proof of concept readouts this year and next. Our strategy for sustainable growth centers on deep commitment to the patient leveraging our areas of expertise in neurology, hematology, and immunology while continuing to focus on innovation. We believe that if we anchor ourselves on these three tenets, patients will benefit and meaningful shareholder value creation should follow.

As always, I want to thank our employees who are dedicated to making a positive impact on patient’s lives and the patients and physicians who are involved in our clinical development programs. The achievements we have made together could not have been realized without their steadfast passion and commitment. So, thank you all for joining us this morning. And operator, we will now open up the call for questions.

Question-and-Answer Session

 

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