Biogen Inc. (BIIB) Q4 2022 Earnings Report, Transcript and Summary

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 year, and we continue to believe that we may be seeing signs of stabilization. Outside of the U.S., revenue increased 4% at actual currency and 12% at constant currency, with continued growth primarily in our Asian markets, and that was partially offset by competition in Europe. Biosimilars revenue was $175 million, and that's a 21% decline in actual currency and 15% at constant currency. And that's due to continued pricing pressure and some net pricing adjustments during the quarter. Total anti-CD20 revenue of $448 million was up 8% versus the prior year. Revenue from OCREVUS royalties increased 19%, which was partially offset by a revenue decline of 14% related to our profit share on RITUXAN. The RITUXAN decline was due to biosimilar competition. Regarding expenses, for the fourth quarter, non-GAAP cost of sales was $571 million, which is 22% of revenue and that includes $36 million of idle capacity charges. Eisai's share of these charges is reflected as part of the collaboration profit sharing line, and that is not part of cost of sales. Fourth quarter non-GAAP R&D expense was $602 million, and this compared to $700 million in the fourth quarter of 2021 and the fourth quarter of 2021 included approximately $110 million in payments related to some business development transactions. Non-GAAP SG&A was $632 million, and this compared to $785 million in the fourth quarter of 2021, and this decrease in SG&A expense was driven primarily by our previously announced cost savings initiatives. We remain on track to achieve our previously announced $1 billion in cost savings initiatives, and I'll comment on this a bit further when I discuss our guidance for 2023. As for our balance sheet, we ended the quarter with $5.6 billion in cash and marketable securities. We had $6.3 billion in debt and roughly $700 million in net debt. And as a reminder, we expect to receive an additional $1.25 billion over the next 15 months from the sale of our equity stake in Samsung Bioepis and that includes approximately $813 million, which is due in April of this year. So overall, we remain in a very strong financial position with significant cash and financial capacity to invest in growing the business over time. Later in the call, I will discuss our guidance assumptions as well as some important accounting considerations for 2023. But for now, I will turn the call back to Chris.

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 about a number of different products that we think have an awful lot of potential. Equally, the neurology franchise is [technical difficulty] slowly progressing diseases. That means you're automatically into long-term and costly clinical studies. And in addition, we have some projects in there where our Phase III studies are essentially proof-of-concept studies. And so that makes them also inherently riskier. And I think we need to think about how do we balance the pipeline in R&D going forward. And finally, I think we should always be -- any company should always be open to thinking about external growth opportunities. This hasn't always been a major thrust of the company in the past. But I do think that as we expand into other areas such as immunology, rare diseases, psychiatry, that there may be opportunities to bolster those franchises through external growth. So as you know, LEQEMBI has received accelerated approval in the United States in early January. We have, on the same day, filed for a full or traditional approval. And I have to also give credit to our partner, Eisai because within a very short period of time, not only did they file for traditional approval on the same day as receiving accelerated approval but also within weeks, they have filed in, in Europe, in Japan and initiated a rolling submission in China. And obviously, in the short term, the launch in the U.S. is really going to be constricted until we get reimbursement, and that's expected to occur once we have a traditional approval. When we get to confirmation of filing from the FDA, at that point, we'll know whether we have a priority review or not. Under the terms of the agreement, Eisai is principally responsible and leads all of the discussions with CMS. As many of you probably have heard, Eisai has said that they are hoping to receive a broader reimbursement once they get traditional approval and that could be as early as this summer. But as you know, this is not a round like pill that we're launching here. You need to have a PET scan or a lumbar puncture to confirm diagnosis. We're going to have infusion capacity restrictions. Neurologists have already been busy treating patients with other conditions. So there will be a question about do we have enough neurologists to expand the patient population? And so there's an awful lot to be done in the near term. In terms of the -- one of the questions that comes up is -- and that will be the main discussion for CMS. To me, the sum of boxes, the CDR-sum of boxes is not really how we look at patient benefit here. As I talk to physicians treating Alzheimer's patients, most of them are really asking, can I still drive a car? Can I feed myself? Can I dress myself? Can I enjoy life with my family? And how can I not be a burden to others? And when you actually look at the activities of daily life, we actually saw a 37% improvement versus placebo. And to me, that's where the real benefit of this product is. Now as we look at Alzheimer's, the other message I think I would really like to drive home today is that this is not just a product launch, there is it today and there is a tomorrow. And certainly, today, everybody is going to be focused on the initial sales of LEQEMBI and that's going to be a question of overcoming some of the infrastructure challenges that we just talked about. There's going to be an awful lot of education of physicians around safety, around the diagnosis and the infrastructure has to expand to be able to provide the PET scans or the CSF testing. But this is really opening up a whole new field. This is a whole new vista, both for patients and physicians. I can remember 10 years ago, where we've had a lot of failures of medicines in development to reduce amyloid. People had given up hope that this was going to be effective. Actually, it was Biogen's PRIME study that was initiated about 10 years ago that actually showed that there was still hope for this. And of course, it's really the CLARITY study that has really demonstrated the importance of removal of plaque and the potential to impact the decline in cognition. And what I think this is going to do is unleash a whole wave of research and development, but there's going to be other things. I mean just even things that we're doing. Obviously, there's amyloid, but there are going to be other modalities such as tau, and Priya will talk about our own potential solution in terms of tau. But we're also looking at this -- the trial really focused on this 18 months of treatment. What happens at the end of the 18 months? And there are actually already data that indicate staying on drug has a continued benefit. And so in fact, Eisai will be filing before the end of Q4 of this year, an indication for the treatment on a maintenance basis. But one of the other most interesting things I learned, and I've been obviously trying to get up to speed on Alzheimer's over the last 90 days, but it turns out that plaque burden is at its maximum just before symptoms arise. So imagine the benefit if we could actually go earlier and in fact, there is a study called ahead that is looking at a preclinical or presymptomatic patients that could be quite interesting. But to do that, of course, other things like blood-based biomarkers or another biomarkers are going to be important. We're going to have to make this a lot more convenient as a treatment and there's subcutaneous treatment formulations in progress. And so what I think you're going to see is just a flood of information over the next three to five years, as new modalities and new ways of treating Alzheimer's patients come up. So here, you see the AHEAD study that was launched in 2020 and looking at presymptomatic. One of the physicians who treat Alzheimer has told me, we used to think about Alzheimer's as a 7- to 8-year timeframe, which was really from the onset of symptoms until sadly death. Now they're looking at this on a 25-year frame because we know that plaque builds up over time. And in fact, what we call early-stage Alzheimer's today or with this mild cognitive improvement, it's really not. It's actually already pretty advanced by the time you have MCI. We already talked about the potential for maintenance dosing and different modalities. So this is going to be quite an exciting area, as we go along. Now the other exciting areas in major depressive disorder. And there are 21 million people who suffer from this. And every day, you're reading about the major concerns around mental health and society. In fact, STEP [ph] just had an article yesterday about the number of younger people who are suffering from depression and feeling sad and even suicidal. And so there is a clear need for new treatments. There are over 400 million prescriptions written every year for MDD and other medical health. But what we see is an awful lot of switching between therapies. There's a lot of concern around side effects. It takes a long time for these new medicine -- these existing medicines to work. And so my personal view is there's an awful lot of unmet need. I was at GlaxoSmithKline when we had Paxil and we had So I'm pretty familiar with what the existing treatments can and cannot do. Postpartum depression, another significant area of unmet need, one in eight mothers, we just had a tragic case, as many of us in the Boston area following, and it just demonstrates that there is a real need for a new approach and new treatment here. And this is not necessarily where a big commercial opportunity is, but there is a major societal need and I think that zuranolone can make a big change here. So we have had a priority review granted, and we have now a PDUFA date in August. As you know, we can't launch immediately because it will have to be a DAA review of the scheduling of the drug before we can launch. So we're looking to launch more towards the end of the year. One of the interesting things is I see this every now and then in the media about the controversial data of zuranolone because six out of seven trials were positive. Folks, when we were developing Paxil years ago, we had to do six Phase III studies to get to that worked. There's an incredible placebo effect here, which is why so many companies actually abandon mental health. So when I saw six out of seven, I said, "Well, this is absolutely terrific. And so I think there is quite an exciting opportunity here." We're not going to early go after every type of patient, and we're doing a lot of mid-market research. Today, we're finishing the SHORELINE study and that will inform us about who's the right patient for this. And obviously, the label will inform who we are interested. But there's a lot of unresolved symptoms of depression out there. MDD patients with elevated anxiety, we won't clearly have an anxiety indication, but that is an area of MDD patients that we're going to be focusing on and those who are adherence-challenged. Going back to existing drugs. I'll just say, obviously, Biogen had enormous success with SPINRAZA. But when you look at it, there are still a lot of potential patients that have been treated adult patients as well as pediatric patients. And we're going to have a fresh look at how we can improve the coverage of this product. Obviously, it's an intrathecal product, which is not necessarily the most convenient. You may have seen we've just done a collaboration with Alcyone to have a new device that would make this more convened for patients who are not wanting to go through the numerous lumbar punctures. We are looking at costs, that's looking at the profitability of our MS franchise. Can we shift some of these costs to supporting our new product launches. We have a biosimilars business, an important business. This is part of the way that we create the economies for the health care system for new businesses, but we are looking at whether we can do more with that business or maybe whether others could on this business. We're prioritizing the near-term opportunities and really looking at our cost base on a systematic basis. Priya is going to talk about the risk profile and productivity of the R&D pipeline. As I mentioned earlier, we have appointed Priya as Head of Development, I'd like to take the opportunity to congratulate her on that. We're also looking for a new Head of Research. While we have a lot going on, continue to evaluate external growth opportunities. And so I think with that, Priya, why don't we talk about R&D?

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 includes several dosing paradigms: 3 doses and every 12 or 24 weeks dosing. And assessments will evaluate multiple aspects of Alzheimer's disease, cognition, function and biomarkers. We believe that CELIA has the potential to generate important learnings regarding the role of tau in Alzheimer's disease. Moving on. Biogen has leveraged a very strong scientific expertise in immunology, and this is how the MS franchise was born. I'd like to discuss our two Phase III lupus programs next. First is Dapirolizumab Pegol, which we have in collaboration with UCB currently in Phase III. We also have Litifilimab or BIIB059, our wholly owned anti-BDCA2 monoclonal antibody. Both are potential first-in-class molecules in SLE. SLE is an autoimmune disease that can affect multiple organs and can lead to severe organ damage and morbidity, especially amongst the non-Caucasian patients. Litifilimab also has the potential to be a first-in-class treatment for CLE. CLE or cutaneous lupus erythematosus is a skin-based autoimmune disease and can exist in the absence of systemic manifestations. Chronic CLE is associated with severe skin damage and impaired quality of life. No new treatment approved specifically for CLE in almost 17 years. The CLE part of the Phase II LILAC study met its primary endpoint, and the results were published last summer in the New England Journal of Medicine. Based upon these encouraging results, we initiated the Phase II/III AMETHYST study of litifilimab in CLE. Lupus disproportionately impacts underrepresented populations, and we have set enrollment targets in litifilimab studies to reflect this high prevalence in African-American and Hispanic or Latino community. Next, I will discuss ALS. ALS is a devastating progressive neurodegenerative disease. SOD1-ALS is an ultra-rare genetic form that affects approximately 330 individuals in the U.S. While the VALOR Phase III study of tofersen in SOD1-ALS did not hit the primary endpoint, we have published our 12-month data from both VALOR and its open-label extension in the New England Journal of Medicine last year. In these results, we observed a sustained reduction in neurofilament, which is a marker of axonal injury and neurodegeneration in individuals who initiated to person earlier. We also observed a slower decline in measures of clinical and respiratory function as well as strength and quality of life. With the PDUFA action date of April 25, 2023, Biogen has the potential to deliver rapidly targeted therapy to people suffering from SOD1-ALS. FDA recently announced the March 22, 2023, date for the advisory community meeting for tofersen. EMA has accepted the marketing authorization application for tofersen for review in the European Union. Moving on. At a higher level, as Chris mentioned, our goal is to rebalance the R&D pipeline. In this context, we have developed a framework to guide our decision-making and the focus is on the pre-proof-of-concept programs. For example, we are investing to win in programs where we have a high degree of biological confidence, such as BIIB080, while we continue to apply a systemic, systematic data-driven approach in this program to learn and derisk. We may also choose to discontinue development for some programs based on their regulatory development or commercialization challenges. Examples of recently discontinuous programs include vixotrigine in neuropathic pain and oral ibrutinib in MS. In parallel, we have several focus areas to help increase the productivity of our pipeline and decrease the risk. First is to derisk and improve probability of success in the pre-proof-of-concept portfolio. Second is to enhance the roll-off and capabilities for translational science and importantly, our overall focus on value generation versus achievement of operational milestones alone. In conclusion, with key assets in Alzheimer's disease, the precious and lupus, we believe the Biogen pipeline has potential to deliver significant growth over the medium and long term. I will now pass the call over back to Mike.

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 to be higher in 2023 than the 22.4% that we saw in 2022, and that's as a result of product mix as well as the dynamic that I just described. We expect this pressure on cost of goods sold to be particularly pronounced earlier in the year. The second result of the amended agreement with Eisai is that we will no longer be sharing ADUHELM R&D costs, and this is expected to create an increase of approximately $100 million in R&D expense in 2023 as compared to 2022. Full year operating expenses, which are comprised of both SG&A and R&D expense will reflect our previously disclosed $1 billion of cost reduction measures, and we expect that approximately $300 million of these cost savings will be reinvested to support the launch of zuranolone and other new products. So we expect that this will result in $700 million of net operating expense savings relative to full year 2021 operating expenses, which were approximately $5.2 billion. We are continuing to monitor potential supply constraints for IMRALDI, and our guidance does not assume any stock outs, but this does remain a risk. There are also some key seasonality dynamics that we'd like to note. As a reminder, Q1 tends to be seasonally weaker quarter as compared to Q4 for our MS business in the U.S., and that's due to channel dynamics and the higher discounts and allowances. SPINRAZA benefited in Q4 of 2022 in part due to the timing of some shipments. And additionally, as a reminder, the royalty rate for OCREVUS resets at the beginning of each year in this rate increases as sales levels increased throughout the year. We also expect that our operating expenses will be higher earlier in the year given that some of our cost savings initiatives will take time to materialize over the course of 2023. And of course, as always, we assume that foreign exchange rates as of December 31, 2022, will remain in effect for the year, net of our hedging activities. And I would refer you to our press release for other important guidance assumptions. Before concluding, I want to highlight a few of the key accounting considerations for LEQEMBI and zuranolone. And now that LEQEMBI has received accelerated approval in the United States, Biogen's 50% share of net commercial profits and losses, which includes in-market revenue less cost of goods, royalties and SG&A will be reflected as a component of total revenue. As I mentioned, we expect this to be negative in 2023 as we expect that commercial expenses will exceed revenue. Outside the U.S., our 50% share of commercial expenses will continue to be recorded within SG&A expense until LEQEMBI is approved on a region-by-region basis. Separately, Biogen's 50% share of global LEQEMBI R&D expenditures will continue to be reflected within R&D expense, and this is both before and after approval. And finally, on LEQEMBI, Biogen is manufacturing the LEQEMBI drug substance in our Switzerland facility, we capitalized inventory until it is sold to Eisai at which point we will recognize contract manufacturing revenue and contract manufacturing cost of goods sold, and that will be at a minimal gross margin. Zuranolone is also a 50-50 profit share in the U.S. with our partner Sage Therapeutics. Prior to regulatory approval, we will record our share of R&D and SG&A expense in their respective line items net of reimbursement to or from Sage. After U.S. approval, Biogen will record 100% of zuranolone product revenue, cost of goods and SG&A., and then we will share Sage's 50% of profits or losses as a component of Biogen's collaboration profit-sharing line. So in closing, our number one goal is to return Biogen to sustainable growth. We believe that the potential launches of LEQEMBI and zuranolone, along with the rest of our pipeline and our strong balance sheet, provide us with the necessary elements to achieve this goal. And we are also working very hard to improve our operating efficiency and remain committed to creating long-term value for our shareholders. And with that, we'll open up the call for questions.

[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 if you strip out the royalty and collaboration income and do the OpEx to sales ratios, we're clearly higher than most of our peer companies. And considering that we have a fairly mature product profile of high volume -- of high-value, low-volume products, we should be more profitable. But the company has already taken $1 billion out. So that means more cost savings have to be done thoughtfully. So we'll be giving you updates throughout the year on that. But we are conscious that the cost base needs to be more productive than it is. On ADUHELM, ADUHELM will see -- we will be looking at the EMBARK data, which is long term, that will give some information about not just for ADUHELM, but also how we think about the longer-term treatment of amyloid-reducing antibodies. There, we also need to see exactly what the landscape is. What I can tell you is, there is no commercial effort behind ADUHELM. Our focus is on LEQEMBI. We believe that is the product that is most appropriate for patients. We do have a commitment to the FDA to do this confirmatory study, so we have to think through that carefully. But I just want to be clear that from a strategic point of view LEQEMBI is our absolute priority and ADUHELM is not being actively commercialized anywhere.

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 at how do we get more out of SPINRAZA? When you're in the rare disease business, it's different than most other businesses. Most other therapeutic areas, you go see a physician because the patients go to the physician. In rare diseases, you have to go find the patient. I remember at Genzyme, someone the marketing teaching me very early on that the marketing strategy is looking for needles in haystack. And that actually becomes a core competency. And that's one of the areas that we have to go after. We've done an awful lot of easier-to-find patients who are more serious and are naturally visiting physicians. But there are, for instance, adult patients who are difficult to diagnose. And so, looking at increasing the patient numbers means that we're going to have to be good at rare diseases. And once you have that core competency in my view, you can be in rare disease and you can be therapy or indication-agnostic in that area. So that's where we're starting because I think we can execute in those areas. Could that be acquisition, could be late stage in licensing. We could look at all of the above. And I -- look, Biogen hasn't necessarily looked at acquisitions as part of its growth strategy. Equally, I tell people, there wasn't a lot of point hiring me if you don't want to go do deals. So not to say we are, but I think there is now an openness within the company to at least look at it. Now as we all know; M&A is hard to execute on and get something that is truly accretive and generates a return on investment. And that's why we are really focused, first and foremost, on driving the most that we can out of organic growth. But I would say that we are open to anything in those four areas that I mentioned before.

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.