Good morning. My name is Bettina [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Fourth Quarter and Full Year 2022 Earnings Call and Business Update. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there’ll be a question-and-answer session. [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 Fourth Quarter 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 one and two, and Table four 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. We have also posted slides on our website that follow the discussions related to this call. I'd like 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 Viehbacher, Dr. Priya Singhal, Head of Development; and our CFO, Mike McDonnell. [Operator Instructions]. I'll now turn the call over to Chris.

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. Now, clearly, Biogen has a strong legacy as one of the pioneers in biotechnology, and there's clearly a strong foundation to build upon. Equally, there's an urgent need to restore growth to the company. We have a great opportunity ahead with a potential launch of two 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 and invite Mike to provide an overview of the fourth quarter and full year financial results.

Thank you, Chris, and good morning, everyone. So I will provide some highlights of the financial performance for the fourth quarter and any financial comparisons that you hear me make will be versus the fourth quarter of 2021. Our total revenue for the fourth quarter was $2.5 billion, and that's a decrease of 7% at actual currency and 4% at constant currency. Non-GAAP diluted EPS in the fourth quarter was $4.05, and that's an increase of 19% versus the fourth quarter of 2021. MS product revenue was $1.3 billion, and that's a decrease of 17% at actual currency and 14% at constant currency. 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 of 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 Polpharma and Sandoz to enforce those rights that have moved for a preliminary injunction against the launch of Sandoz and Polpharmas biosimilar in the United States. 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 a supply shortage in 2023. Moving now to SMA. Global SPINRAZA revenue was $459 million, and that's a 4% increase in actual currency and 10% at constant currency. In the United States, SPINRAZA revenue increased by 5% versus the prior…

Thank you, Mike. 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. And therefore, we really need to think about how do we grow the business in the future. Now we have an amazing opportunity with two 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 one but two major products and not just any products, but products that are really quite transformative in their respective therapeutic areas, and that's obviously the LEQEMBI and zuranolone. 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. 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&D pipeline. Now we don't get very much credit for what we have in R&D, and Priya is going to talk to you…

Thank you, Chris. We are advancing LEQEMBI with Eisai as a foothold in Alzheimer's disease, as you heard from Chris, and zuranolone 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. The priority review is granted by FDA to applications for medicines that, if approved, would provide significant improvements in the effectiveness or safety of the treatment diagnosis or prevention of serious conditions. Beyond these developments, we're also making progress across R&D reprioritization, and today, I will share a few highlights from some of our pipeline programs in Alzheimer's disease, lupus and ALS. We are advancing a broader Alzheimer's disease pipeline, as you heard from Chris, and we have initiated the Phase II CELIA study of BIIB080 in early Alzheimer's disease. Prior clinical results, including those from our own Phase II Gosuranemab suggests that targeting extracellular tau alone is insufficient to affect intracellular tau tangle. 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, reversed tau pathology, prevented hippocampal volume loss and neuronal death. This year 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. 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 Ib study at ADPD next month. As I mentioned, we have initiated our Phase II CELIA study in 2022. It…

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 and $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. This guidance also assumes modest in-market revenue for LEQEMBI in 2023, with commercial expenses -- commercialization expenses exceeding revenue, and Biogen will record its share of net commercial profits and losses for LEQEMBI 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 ADUHELM and as a result, we will have sole decision-making and commercialization rights, along with a substantial majority of the economics beginning in 2023. Eisai will receive a tiered royalty and will no longer share in expenses related to ADUHELM, and this does result in two important considerations for 2023. First, we expect to incur approximately $150 million to $200 million of excess capacity charges in 2023, and all of that will be borne by Biogen. In 2022, we incurred $119 million of idle capacity. And of that amount, $55 million was reimbursed by Eisai. Our cost of sales as a percentage of revenue is expected…

[Operator Instructions] Your first question comes from the line of Salveen Richter of Goldman Sachs. Please go ahead.

Good morning. And thank you for taking my question here. Maybe a question of whether you can lay out potential timelines for the NCD reconsideration for LEQEMBI? Historical precedent suggests this could take about nine months. But when is the soonest this process could start? Could it start approval? And when will we know when the process has been initiated? Thank you.

Yes, thanks for the question. 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. CMS could decide whatever, but the feeling is, 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 that I think you're seeing a much different tone in the broader community than we had with ADUHELM. 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 Eisai has guided to their hope that there would be this broader reimbursement once they have traditional approval.

Our next question comes from the line comes from the line of Mohit Bansal of Wells Fargo.

Great. Thank you for picking my question. 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. 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 timelines when we could hear about this? Because you also talked about almost $200 million of spend here. You said that you will probably prioritize and figure out whether you want to keep spending that money or not. So can you talk a little bit about the timelines of that now that you are in the business review more? Thank you.

In OpEx, you've got two big buckets, right? You've got R&D and you've got SG&A. In R&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. 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, cost to complete a whole bunch of other things. There is an infrastructure element to R&D that we will be looking at as a matter of priority. And then you have SG&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. 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 to see is a shift from some of those resources to supporting the launch. Now there's hundreds of millions of dollars going between Eisai, Sage and Biogen behind the prelaunch activities this year for LEQEMBI and zuranolone. 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&A, and we will be taking a close look at that this year. So you're going to see some reductions in cost, but 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…

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

Hi. Good morning and thanks for taking my question. One for Chris. In terms of your ongoing review of the business and the pipeline, how should we be thinking about timelines just in terms of the potential for strategic actions with ADUHELM? And then just more broadly in terms of business development, when you're 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? Thank you.

So, on R&D, again, you have a number of projects that have been ongoing for a number of years. We have a number of products actually in Phase III that are actually proof-of-concept studies. There are at least -- not even including ADUHELM, we have three products in development where we did not have safety or efficacy data out of a positive Phase II. So, I think we need to think carefully about each of those programs. It does take some time, and there is always a question of, well, 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, 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 a successful business. It's an important business for society. But we need to think about where we put our resources. 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 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 and whether we continue to either to support that business with resources or we think about other options for some of those businesses.

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

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, but could we quantify, for example, of the 100,000 patients number mentioned in some of the prior press releases for year three, 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 in cans?

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 continued 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 -- they're going to be constraints to the system. 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 careful selection of patients as to who's really the best patient to benefit from this treatment and physicians will take their time to understand 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. That's why I say it's not really a round white tablet as the launch.

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

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 learnings. So, I think as you said, we'll learn as we go. Two points here. One is that Eisai is already leading on developing a maintenance therapy. And this could be either a four week or 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 a subcutaneous formulation. And I think we are -- Eisai and Biogen are thinking about what burden it would -- a product like LEQEMBI 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 sub-study, and it will also be filed by Q1 2024 as Eisai 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 Seigerman of BMO. Please go ahead.

Okay. Thanks for taking my 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? Thank you.

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 on 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 zuranolone launch, we are going to be going to a much broader population. We're probably going to have a lot more patient outreach. I think Biogen has done exactly on television commercial in its history. And that's something we're going to have to get good at. 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 and often the Phase III becomes the proof of concept because you can't really test these things adequately in Phase II. And so, if I sort of say, "Well, where could we legitimately go? Where do we have some experience?" Well, we can certainly be 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. Psychiatry will have one product in the bag with zuranolone. Would it make sense to expand more into psychiatry? And obviously, with SPINRAZA, when we look…

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 a series of deals just in terms of aggregate capacity. As we mentioned up front, we ended year with $5.6 billion in cash, we have more coming in from Samsung in the early second quarter 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 billion of capacity number that we can utilize in a variety of ways.

[indiscernible] point out the amount of money we're getting still from Samsung on the yet to come in?

Yes, $800 million that's coming in April and then another $400 million-plus that will come in next year.

Firepower is not necessarily the main constraint finding something that's worthwhile doing is the really hard part of this.

We will now move to Tim Anderson of Wolfe Research.

Thank you. A couple of questions on LEQEMBI and the subcu. Can you just confirm what the minimum regulatory 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 subcu, and I'm trying to gauge whether there's any meaningful risk that we should be cognizant of? Thank you.

I can take that. Thanks for that question. I think overall, I just want to reiterate that Eisai is starting subcutaneous in the Phase III open-label extension. And actually, details of that sub study are public. You can take a look at that. Eisai 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 will -- they expect to file 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 AD study, which was, of course, utilizing the intravenous bimonthly dosing regimen. I think the most important part there was that we saw the amyloid reduction at six 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 end points. 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 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 presymptomatic or preclinical Alzheimer's disease.

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 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 two to three 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 a port 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 or 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. 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 -- they're probably still a couple of years away. But there is important, in my mind, commercially as a subcu.

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

Good morning. Thanks for taking my question. On LEQEMBI, as you consider the maintenance therapy, 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.

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

Like, I guess, how are you thinking about pricing strategically for a maintenance therapy on an annualized basis relative to every two weeks, and how should we think about the overall balance?

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 every two weeks. As you get into maintenance, as Priya said, the dosing regimen could change. And obviously, if you were to go from two weeks to one month, that has an overall per patient cost on an annualized basis that would be lower. 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. 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 look at this -- I mean, we're talking about $26,500 for the drug cost. 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, and 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 regimen, we may find that the average annual cost of a patient goes down, although we're not necessarily touching the price of the drug.

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

Hi. Thanks for the question. You mentioned in the slides that you would like to improve the risk profile and productivity, R&D pipeline, particularly profile. And I recall, in January, you talked about lower-risk-type projects and perhaps Biogen is too high risk, high reward, particularly for this market cap? And then going back to your prior days, you did, I think, the Genzyme on 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 the speed? Thank you.

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 I, you've got 10% probability of success. I think there's a couple of areas that we would look at. The first thing is, obviously, if you can do a Phase II study where you get a lot of confidence out of safety and efficacy before you go into a Phase III study, you have essentially, at every stage of development, from Phase I to Phase II, Phase II to Phase III derisk that. We sometimes can't do it. If you look at Alzheimer's and the development of either lecanemab or ADUHELM, you can start to see, for instance, that you're reducing plaque, but one of the problems we -- 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 II, you can get a proof of concept. As I said earlier, we are sometimes doing proof of concept in Phase III, 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 precedented versus unprecedented mechanism of action? How much are small molecules versus large molecules? Can we do more collaborative-type 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 and 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. So, having things that read out on a little bit more frequent basis would be helpful to looking at sustainable growth of the company.

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

Our next question comes from Chris Schott of JPMorgan.

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 a longer-term priority once you make whatever changes are necessary for the core business? And maybe just a second part of that same question. Given your prior comments of the narrow focus of Biogen, does that point more towards BD is skewed towards either company acquisitions versus partnerships or earlier-stage deals because 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.

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 a Head 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've got to look at a lot of things before you do something. So even if you decide you want to do 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 LEQEMBI and zuranolone, 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. 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.

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

This concludes today's call. Thank you for your participation. You may now disconnect.