Good morning. My name is Cecilia and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen First Quarter 2022 Earnings Call and Business Update. All lines have been placed on mute to prevent any background noise [Operator Instructions]. Thank you. I would now like to turn the conference over to Mr. Mike Hencke, Head of Investor Relations. Mr. Hencke, you may begin your conference.

Thank you. Good morning, and welcome to Biogen's First Quarter 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 1 and 2 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 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 the risk factors discussed in our SEC filings for additional detail. On today's call, I am joined by our Chief Executive Officer, Michel Vounatsos; Dr. Priya Singhal, Interim Head of Research and Development; and our CFO, Mike McDonnell. As a reminder, during the Q&A portion of the call, we kindly ask that you limit yourself to one question. I will now turn the call over to Michel.

Thank you, Mike. Good morning, everyone, and thank you for joining us. We continue to execute on our core business objectives in the first quarter. Mike and Priya will review our quarterly performance and recent progress in R&D, while I focus on our strategy and near-term operational priorities. Let me start with a few comments on the recent national coverage determination by CMS for amyloid beta targeted therapies for Alzheimer's disease. This decision effectively denies all Medicare beneficiaries access to ADUHELM. We are very disappointed by the final NCD. And as a result, we will substantially eliminate our commercial infrastructure for ADUHELM. We will retain minimal resources to manage patients access programs, including a continued free drug program for patients currently on treatment in the U.S. We expect to continue funding certain regulatory and R&D activities for ADUHELM, including the continuation of our EMBARK redosing study and the initiation of our Phase IV post-marketing requirement study ENVISION. Additional actions regarding ADUHELM may be informed by upcoming data readouts expected for this class of antibodies as well as further engagement with the FDA and CMS. In parallel, we are committed to working closely with Eisai on the potential launch of lecanemab. We are now looking forward as we work to advance our broader pipeline, including lecanemab and zuranolone, execute on our base business and deploy our capital in the best interest of shareholders. We recognize that Biogen is facing a number of near-term challenges. These challenges, including generic erosion of TECFIDERA, competition for SPINRAZA in biosimilars and DTNF [ph] and a declining profit share from RITUXAN in the U.S. These challenges are all part of the biopharmaceutical business life cycle, and we believe that potential new product launches such as lecanemab, zuranolone and additional biosimilars can help return the company to…

Thank you, Michel, and good morning, everyone. As Michel mentioned, we are enhancing our focus on dynamic R&D prioritization with the goal of ensuring a sustainable pipeline that can deliver on Biogen's vision of a multi-franchise portfolio. We will continue to invest in R&D in a disciplined manner, including pursuing new and external opportunities with a potentially different risk/reward profile encompassing those within our core neuroscience therapeutic areas as well as select investments in therapeutic adjacencies. This approach will be informed by emerging scientific data, as well as internal and external readouts. As part of our overall prioritization strategy, we may choose to accelerate, terminate, divest or partner certain programs. In addition, we will continue to advance key capabilities such as functional genomics, patient identification, novel modalities, biomarkers and clinical outcome measures. The goal being to reduce risk, accelerate clinical development and increase the probability of success in achieving positive proof of concept. I will now share the R&D highlights of the quarter. Starting with Alzheimer's disease. In addition to continuing the progress with lecanemab U.S. filing and the Phase 3 study, Eisai presented data at the annual ADPD meeting this past March showing that lecanemab treatment in the core Phase 2b study resulted in a dose and time-dependent reduction of brain amyloid as measured by PET SUVR and that the reduction of brain amyloid was co-related with changes in two important peripheral biomarkers of amyloid and tau pathology, specifically an increase in plasma ABN42 to 40 ratio and a decrease in plasma phospho-tau 181, respectively. Furthermore, these biomarker changes were correlated with clinical benefit as assessed by the change from baseline in the clinical dementia rating scale, Sum of Boxes. Notably, however, these peripheral biomarkers gradually began to reverse upon discontinuation of lecanemab treatment at the end of the…

Thank you, Priya, and good morning, everyone. I will provide some key highlights around the financial performance for the quarter and review our full year 2022 guidance. Please note that all financial comparisons are versus the prior year, unless otherwise noted. Total revenue for the first quarter was $2.5 billion. Our MS business inclusive of OCREVUS royalties delivered $1.6 billion in revenue. TECFIDERA continues to be impacted by generic entry in the U.S. and was negatively impacted by pricing pressure outside of the U.S. VUMERITY first quarter global revenue was $128 million. We are pleased with VUMERITY's trajectory in the U.S. and are making good progress towards launching in up to 20 markets outside the U.S. this year. TYSABRI global revenue increased 3%. In the U.S., TYSABRI revenue benefited from favorable pricing that more than offset modest volume declines. Outside the U.S., we were pleased to see continued patient growth. Interferon global revenue declined by 23% due to the continued shift from the injectable platforms to oral or high efficacy therapies. Moving now to SMA. SPINRAZA global revenue declined 9%. In the U.S., although revenue growth of 10% was driven by positive channel dynamics, we were encouraged to see new patient starts at the highest levels in over 2 years and a continued slowdown of discontinuations versus the prior quarter. Outside the U.S., the revenue decline was driven primarily by the timing of shipments in certain markets, competition and negative currency impacts, partially offset by strong initial uptake in China as this was the first full quarter since receiving national reimbursement in China. Global SPINRAZA revenue grew 7% versus Q4 of 2021, driven by solid sequential performance outside the U.S. as well as some seasonality dynamics in the U.S. Moving to our biosimilars business, revenue declined 5%. While volume increased,…

[Operator Instructions] Your first question comes from the line of Matthew Harrison from Morgan Stanley. Please go ahead.

Great. Good morning, thanks for taking the question. Michel, I was hoping you could comment on the CEO transition here in terms of timing as well as what the Board is looking for in terms of the successor, and wishing you all the best in the transition. Thank you.

Thank you, Matthew. 5.5 years is a good term and if you look at my professional history, this was approximately the tenure in every key posting that I've had. I've given a lot, and I will continue to do so as a priority during the transition to support the team so that we can continue to deliver. Today, we reaffirmed our guidance. The business momentum is going as well as it could despite the competition and the life cycle events that we are facing. We are exciting about -- excited about the readouts to come. And the ADU and the anti-amyloid story is still unfolding. So the story will continue. And I'm very excited about the opportunity to have new readouts in that space that will best inform everything we've heard, including decisions. So the CEO transition is a natural event. And is there always an ideal timing? I'm not sure. But I think that after 5.5 years, while we have a strategy that is pretty visible to all of you being a specialized company in neuroscience with some immuno assets that are very important and in Phase III with the biosimilars and the digital health, I think the company is well positioned. It's good to have at one stage somebody else who comes with the support of the Board and basically revisit the assumptions. So I think that this will be good for everyone involved. And my focus again will be on the company. It's not about me. It's about the company, on the team and on a smooth transition. Business continues. I will be meeting all of you in the coming days in person in Boston and New York. I will be traveling with my team in Asia at the end of the week to meet our key partners and potential future partners and support our team and meet with PMDA also. So the business continues, and I will be at the top of it until the last second.

We will now take our next question from Umer Raffat from Evercore.

Hi guys. Thanks so much for taking my question. I guess I'll focus on cost for a second. And I guess I'm just trying to get at what is the actual cost savings? I'm partially confused because SG&A guidance was cut, but -- sorry, SG&A was cut, but the overall guidance was unchanged. Or maybe just a simple way to think about it is where are we truly headed on OpEx over the next coming medium term? Because I just think back to when I first started covering Biogen, you were a leader in MS, you had over $4 billion in marketed MS revenues, but the SG&A was only $1 billion. Now the market MS revenue is $5 billion, meaning a little higher. But the SG&A is $2.5 billion. And of course, you have some biosimilars and SPINRAZA. And I'm not necessarily saying 2.5 goes down to $1 billion, but can we see a substantial SG&A rebasing of the business? Thank you very much.

Yes, Umer, it's Mike. Thank you for the question. So the cost savings that we mentioned today, the additional $500 million run rate that will be largely tied to the ADUHELM infrastructure. And we talked about that on our last call that we had initially expected about a $400 million number in 2022. And so obviously, that will be cut substantially. So in the SG&A guide where we took that down by about $200 million, that largely is a significant piece of it. Beyond that, we will obviously look at some of the non-revenue facing pieces in G&A and others in order to achieve that run rate. And as we've said in our prepared remarks, we may invest certain portions of that $500 million in savings into the -- into future growth initiatives with the overall priority being to return to growth. I will say in closing that as it relates to guidance, we were able to reaffirm our guidance, notwithstanding the inventory write-offs and the currency headwinds that we were facing. And that was really a result of two things. One is the cost initiatives, and then the second was that the top line has performed a little bit better than what we had originally expected at the beginning of the year. And I would point to SPINRAZA MS as well as the CD20s being a little bit stronger than expected, and that impact between the cost savings and the revenue. It's about half and half that contribute to our ability to hold the EPS in the same place. So we'll continue to take necessary cost measures to align with the revenue trajectory of the business. And hopefully, that's some helpful color.

And a couple of comments to consider, Umer. The first one is that at that time where you started to cover, it was mostly U.S. business only. And this is not the case today. And the second point is that there were very few DMTs in the class, and now it's extremely crowded and Biogen is still the leader globally in each one of those being SMA, being MS and being NTMS in Europe. So this takes some muscles and, obviously, skills. And we have made tremendous progress in terms of using digitalization and all the means of engaging, but we get the point, and this is compounded by the investment we have made on ADUHELM that we're eliminating.

We will now take our next question from Robyn Karnauskas from Truist Securities. Please go ahead.

Hi, thanks for taking the question. So, the first one is just for Priya. You talk about how new data showing lecanemab. When you stop it, it suggests that you could have some decline in cognition. Can you just talk about any more updates as to why you think that is? And if you think there's a difference in the mechanism versus Lilly's drug? Another thing you mentioned, you did mention also about potentially divesting products. I wanted to know if you could elaborate on what you're referring to. Thank you.

Priya?

Yes. Thank you for that question. So first of all, let me touch upon lecanemab. I think that the data that I referred to is data from the gap period in the open label, which was followed by the open-label extension in the Phase II study. And I think what it shows you is that the science on this aspect of what is the ideal treatment duration is emerging. And that's really the point that we need to kind of take away from this. So the field is evolving. There were two biomarkers AB in [ph] 42 to 40 ratio, as well as plasma phospho-tau 181. And we saw a reversal in both in the wrong direction. So I think that how we are trying to address this is -- Eisai is actually taking a lead on it because they are assessing how maintenance can be applied, and they are doing this in their open-label extension in the Phase II study. So there's more data probably that will read out in the upcoming period as they learn more. And I think with donanemab, you asked me for a comparison, I can only speak to the data that I've seen in the public domain. And I think that what we haven't seen is the after effects of long-term follow-up. We haven't seen a similar effect of what happens to amyloid plaques, of what happens to phospo-tau once lecanemab is stopped. And I think that, that data would be relevant for us to make a fair comparison. At the moment, I think what we believe, along with Eisai and what we see, is that stopping prematurely can cause a reversal. So hopefully, that answers that part of the question. And then the second part of your question was about divestiture. And I'll…

Operator, we’ll take the next question please. We’re having technical difficulties, we’ll try to rejoin the call. [Technical Difficulty]

Thank you, sir. We will now take our next question from Salveen Richter from Goldman Sachs. Please go ahead.

Good morning, thanks for taking my question. In terms of your capital allocation strategy to drive growth, how much of a priority is business development?

Salveen, hi, Mike McDonnell, and thank you very much for the question. Business development has been and continues to be our priority. And we have a pipeline that we feel good about, and we will continue to look to supplement that through business development transactions as we have done in the past. And at the same time, we will continue to return capital to shareholders. So it will continue to be a balance and business development has been and will continue to be a priority.

We will now take our next question from Michael Yee from Jefferies. Please go ahead.

Thank you. Following up on Michel and Priya's comments around R&D portfolio prioritization. Is it safe to say that you would consider anything on the table in terms of divesting, partnering, out-licensing, bringing in stuff, but just the concept that anything is on the table with regards to even including product lines or franchises at the whole portfolio and always is all on the table? Can you clarify that? Thank you so much.

Thank you, Michael. Yes, I would say that across the board, we are going to be driven by science and integration and maximizing the value that we bring to patients with diseases of high unmet need. So I think we would evaluate all options. But I think the science has to be the driver, and that's how we would do the evaluations. So yes, exactly as you said.

Would you include commercialization businesses and franchises as well?

Potentially for some, but not for all. I think that Biogen will remain on the upper hand on a few priorities, but we'll be open to look for partnering on others. But it's for Priya and the team to determine with the support of the governance of the company.

We will now take our next question from Cory Kasimov from JPMorgan. Please go ahead.

Good morning, guys. Thanks for taking the question. I'm curious, what is significantly scaling back ADUHELM's commercial infrastructure, say, if anything, about your expectations for the Phase III lecanemab data? Or is it simply too long to wait until you get full approval even if lecanemab is successful in CLARITY AD? And along those lines, can you remind us of how your responsibilities for commercialization on that front might be any different than with ADUHELM? Thank you.

So we do expect the Phase III readout in the fall of this year. And we are discussing in full alignment with a partner the operational details beyond lecanemab. But based on the timing it will make no sense to carry such a long team, such a large team for such a long time. So I think it's the right decision. The preparation that was made on the infrastructure is there, and there is certainly a big benefit for the entire class moving forward. But we could not afford to keep the team, unfortunately, for that many months. So I think it's the right decision. Our sentiment for lecanemab does not change, just to be clear.

We will now take our next question from Marc Goodman from SVB. Please go ahead.

Yes, good morning. Just to continue on with the R&D topic. I think the view from the outside world has been that the pipeline has always been a little bit high risk, high reward, and that's probably not that surprising just because this is CNS. But now that you're going to take a look at the pipeline and really kind of change the way you're viewing things, how much does that change, factor into whether you start to diversify more away from CNS? And if you're going to stay within CNS mostly, how do you change the probability of success projects to lower risk projects? And how do you do all of this change, given that there's also a management change going on? And how much board is supportive and I think you understand the context of the question. Thank you.

Yes, absolutely. And I think it's a very important question. It's all about having the right priorities and somehow rebalancing the risk profile of the portfolio. And we know that. And this goes with neuroscience. That Priya will say more.

Yes. Thank you, Marc. It's a really pertinent question here. So I think two -- it's a 2-pronged approach. Number one, we're going to be driven by the science, we're going to stay within neuroscience. So I think at this point, I want to be very clear that we stay within neuroscience. It's a very important part of our expertise, our talent pool, and we are continuing to build on our strengths there. But we are definitely open to adjacencies. We've already demonstrated -- for example, as I mentioned with the zuranolone filing and with the 104 readout coming on its heels. In addition, I think that we are working in lupus. So that's a specialized immunology field. And we may consider other indications, we may consider other potential opportunities in the space. So that's one way in which we would diversify and rebalance our risk. Because as you know, the probability of technical and regulatory success changes as you move out of neuroscience. But given our core expertise of neuroscience and all the learnings we've had, we believe we have a lot of asymmetrical knowledge in the space. And in that space, we are continuing to enhance our probability of success, maximize it, in fact, by building on our strengths in biomarkers, clinical development, functional genomics, human validation. So we believe that these are the methodologies, which will help us sort of increase our probability of success and give us the ability to deliver on proof of concepts. So it's a two-pronged strategy. And add to that our four pillars, which you already know about, biosimilars and digital health. We're also looking at integration, right, with digital options. So this really goes beyond a very narrow focus. It looks at the portfolio in totality and the value that the portfolio brings in totality. And it's -- we have the expertise in terms of modalities. We have all modalities available to us. So we're looking at targets, and we're looking at the best modality. We're not looking at modalities and how do we kind of exploit those. We're looking at it in the reverse way. We're looking at disease target and then what's the best modality to go forward with. I hope that gives you a bit of a glimpse of how we're approaching this. Thank you. Can I just address the last part? I meant to add that you asked about how we would do this in a Board setting, in a management setting. I want to say that I have a lot of authority currently, and I am making decisions on prioritization. So that, I hope, will go forward.

We will now take our next question from Brian Abrahams from RBC Capital Markets. Please go ahead.

Good morning. Thanks so much, for taking my questions. And best wishes to Michel with the transition. What's your latest sense of the FDA stance on accelerated approval for beta amyloid antibodies, just with some of the changes in leadership and initiatives at the agency? And then I know the FDA has agreed that CLARITY AD could serve as a confirmatory study following accelerated approval of lecanemab. But can you clarify, if you don't receive accelerated approval, whether that Phase III could stand on its own to support full approval or whether you need an additional study?

Thank you for the comments. Priya?

Thank you. So I'll just step back, Brian, and say that accelerated approval pathway is a very, very highly rigorous and scientific regulatory pathway. It's existed for several years now. And several products have come through the pathway and many patients around the United States have benefited from this access. So I know that there's a lot of dialogue, and I'm reading the same as you are. But I don't believe that at any point right now, there is going to be a potential major shift. There could be enhancements, there could be sort of refinements. I'm sure that could happen to any regulatory pathway as more learnings are obtained. But I don't believe that our confidence has been shaken in the accelerated approval pathway. It remains a critical way in which you can bring products to patients who really need them today. So that's number one. Number two, I'll say that with CLARITY AD, the strategy has been -- and I think this has been publicly communicated by Eisai and us, so I'm just quoting that, that they have filed -- they've initiated the filing based on the Phase II study, as you know. And that is via the Accelerated Approval Pathway. There is agreement from the FDA. And Eisai have commented on this publicly as well, that CLARITY AD could serve as a confirmatory study. Now to your question that what if the CLARITY AD is unclear or ambiguous, could they still get approval, could we still get approval? I think that would be very speculative for me to comment on. What I think would be a reasonable way forward, depending on the data, would be to have that discussion with the FDA. Because the science here is complex, as we've seen. And I think the most important thing is to continue to evaluate the science and the data as it emerges and assess what is the strength of evidence. And I think that is really what is going to make the difference in this case. Thank you.

We will now take our next question from Geoff Meacham from Bank of America. Please go ahead.

Thanks for the question. I just wanted to jump on to other questions on lecanemab and just wanted to know, strategically, how important is having a robust Alzheimer's pipeline to you guys? I mean, when you look at the infrastructure that you have from an R&D perspective, clearly, there are lessons to be learned from adu. But I wanted to ask you, is there an opportunity or is there a potential to bring in other assets behind lecanemab to kind of further expand the Alzheimer's piece?

Thank you. I think that, first of all, we remain committed to Alzheimer's disease. And lecanemab is -- we are very privileged and honored to have 2 Abeta removal agents. Aducanumab, we still continue to invest in EMBARK and ENVISION. We think that these will have potentially very critical scientific data that can impact not only the product but also the field. So that remains very important. We continue to invest in early Alzheimer's disease programs. As I mentioned, we have a BIIB080, which is our anti-tau ASO, and then we have BIB113, which is an OGA inhibitor. Very different sort of approaches to tau pathology. So this remains very important. We have other assets which have yet unnamed pathways and targets, which I can't speak about, but there are many, many others as well. So we remain committed to Alzheimer's disease. We are definitely taking all our learnings from the scientific approach, but also on how we would approach clinical development. So we are continuing to strengthen our clinical development expertise in the area. Would we be open to other assets? Yes, we continue to look and scour the external opportunities. At any given time, we are looking at many assets. And again, as I've said, the science will drive the way. The science and the value will continue to drive the way. So that's -- I would say, yes, we are absolutely interested and we continue to remain highly, highly committed to Alzheimer's disease. Thank you.

We will now take our next question from Jay Olson from Oppenheimer. Please go ahead.

Thanks for taking the question. And thanks to Michel for his constant dedication to patients. My question is about the balance sheet. And if you were to pursue a larger business development transaction, how much debt would you be willing to take on? Thank you.

Jay, it's Mike. Thanks for the question. And I think that when you look at our balance sheet, we're in a very good place. We ended the quarter with $4.8 billion of cash. We received another $1 billion from Samsung in April. So we've got the better part of $6 billion of cash on hand. And when you look at our current debt levels, we're at two turns of EBITDA and gross debt and less than 1 turn net debt. So if you hypothetically added a turn of debt, not saying we wouldn't, but it's a hypothetical, that's about $8 billion worth of capacity that we have. And I think that our goal is to deploy that as accretively as we can with the number 1 goal being to bring ourselves back to growth over time. We've done about 30 deals and deployed about $6.5 billion in business development over the last 5.5 years. We will continue to prioritize business development along with returning capital to shareholders. It will be a balance. And I would say that we do have capacity for some incremental debt, but we've got so much cash on hand right now that adding debt is not something that we would obviously be needing or looking to do in the near term. So hopefully, that's helpful.

We will now take our next question from Phil Nadeau from Cowen & Company. Please go ahead.

Good morning. Thanks for taking my question. I want to follow-on to Brian's on the CLARITY AD study. Could you talk in a bit more detail about the design of the trial, in particular, what's the powering on the primary endpoint of CDR Sum of the Boxes? What is a clinically meaningful difference between drug and placebo and CDR-SB? And then in terms of the p-value, if this is a single Phase III study, what p-value is necessary for success? Is 0.05 sufficient or do you need 0.01?

Thank you. So first of all, CLARITY AD, we haven't spoken externally about the powering of the study, but Eisai has commented on it. In the Phase II study, we had several arms and the outcome was empowered for CDR Sum of Boxes. That is actually very different. Phase II has informed how Phase III has been designed and it is powered to detect a statistically significant difference on CDR Sum of Boxes. So that's one aspect I wanted to cover. The second is that CDR sum of boxes, we believe, is the right primary endpoint for this patient population and for the MCI in early Alzheimer's disease. This has cognitive and functional elements. We believe that it is the most relevant primary endpoint. And we feel that we are fairly confident in the design of the study to kind of give us the outcome. Now what kind of p-value is very hard, I would be speculating, so I won't speculate here. But we feel that the study is designed appropriately and that the results would be important to review. I think in terms of clinical meaningfulness, we have done a lot of work ourselves. There's a lot of external dialogue. And we do believe that, honestly, the EMERGE data that we had with the 22% difference is highly clinically relevant and clinically meaningful to KMEs and to patients. So we've done a lot of work around this. And I'm sure you've seen that in the public domain. Beyond that, I don't think I can comment on it. Thank you.

Operator, I think we have time for one final question.

We will now take our final question from Mohit Bansal from Wells Fargo. Please go ahead.

Great. Thanks for squeezing me in. Maybe a question for Mike. So just -- just trying to understand your comments on share repurchases. So given that the cash flow of the company is not as good as it used to be a couple of years back, and maybe a need for diversification or buying more assets, why share repurchases at this point are a priority in your list?

Yes. So thank you for the question, Mohit. And obviously, we did not buy any shares back during the quarter, and you shouldn't be looking quarter-to-quarter because that can vary depending on what we have in the way of business development activity, timing of windows, other considerations, et cetera. But we do expect to utilize a portion of the $2.8 billion that remains throughout the remainder of 2022, and we continue to believe that our stock is a good investment. But at the same time, you obviously will not see us repurchasing shares at the pace that you saw back 2, 3, 4 years ago because of the situation with TECFIDERA and RITUXAN, but we do continue to see it as a good investment and it will be a balance between BD and share repurchase as we go. But we'll be smart and balanced about it. And our capital allocation, as we mentioned, is one of our key operational priorities as we look forward throughout the rest of 2022.

And that concludes our call for today. Thank you, everyone, for joining us.

Thank you. That concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.