Well, thanks for joining us, everybody. I'm Terence Flynn, the U.S. biopharma analyst here at Morgan Stanley. We're very pleased to have Biogen joining us today. From the company is Chris Viehbacher, the CEO. Chris, thanks so much for being here. Before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. Well, thanks so much, Chris. Really appreciate the time today. I know it's a busy time at Biogen. Maybe to start, I thought we could talk about what some of your key priorities are over the next year.
Yeah, thanks, Terence. It has been a busy, I think it's eight months, maybe nine months now. You know, I think I certainly learned when I was at Sanofi, you want to get change done early in your tenure, because it actually takes time to pull through, and that's kind of when organizations are most open to change. We started off with people, products, and pipelines, and that merged into five priorities, and I think we made really good progress on all five. One was really reorienting the company. When I got there, everybody was still really focused on the MS franchise, and yet we had LEQEMBI, we were hoping to launch ZURZUVAE.
And so that meant a shift in not only focus, but also the development of new capabilities. We had a cost base that everybody in the industry was saying was way too high, and we had to address that. We have had five heads of R&D in 10 years, and so that has led to a big mishmash in the R&D pipeline, and we needed to sort that out. We do have a couple of existing products that have patent cover into the mid-2030s, which is VUMERITY and SPINRAZA. So looking to certainly stabilize and get growing SPINRAZA again, and really taking advantage of VUMERITY, which is really now the only branded product in the oral space. And then finally, looking at de-risking our growth path through external development.
Of course, we've announced the acquisition of Reata. So I actually think now we've got all the elements to really grow Biogen sustainably. Certainly as we look over the next three years, I think we can aspire to substantial growth. Of course, you know, I learned early on in my career, strategy is 10%, execution is 90%, and so that's what we're really focused on now.
Okay, makes sense. What, as you look out three years, again, obviously, the sustainable growth is an important piece of it, but what else do you hope to see, or where, what do you think the company will be positioned, you know, at over that time period after some of these changes play out?
Yeah, I think, well, you know, one of the things I think we've been trying to do is let's get the company, because we've had this melting iceberg, let's get the company back on a growth trajectory. And I think we've got all the elements, certainly with the cost reductions, Reata and LEQEMBI, even to a degree, PPD for zuranolone. Where I'm going to start spending a whole lot more time is with Priya and our newly announced CSO, Jane Grogan, really thinking about the pipeline. Because I think what I'd really like to see happen is that we are growing strongly into the next decade. And I think there are some very good assets.
Priya has done an amazing job of really weeding out some of the non-value-added projects and putting our resources behind things that we really like. BIIB080, which is our ASO for tau, for example, I think we'll see some very encouraging new data at CTAD on that. We've got a couple of products in lupus. One, phase III, we'll see data in the middle of next year. We have another one for cutaneous lupus. There's a product for generalized or sporadic ALS, another ASO, and another ASO for Angelman's. So I think there are already some assets in there. With Adam Keeney, our new head of corporate development, I think we're going to be looking at doing more business development. And then, you know, Biogen's research has not been the most productive.
In 45 years, actually, litifilimab for cutaneous lupus and ADUHELM were really the only two products to make it into development of any significance. Jane comes as an immunologist, and I specifically wasn't looking for a neuroscientist, and so that's an opportunity also to start reshaping the company over a longer period of time. So, you know, I'm certainly going to be looking to, to see how do we, how do we really transform Biogen into a scientific and research powerhouse as well as a commercial one.
Okay. And is that, is it fair to think that immunology is going to be a key part of that diversification? Obviously, you have a extensive legacy in, in neuro, again, CNS. But as you think about this diversification pivot, you know, is, is it fair to think immunology is going to be a big part of the story on the forward?
Yeah, I read one analyst report over the weekend that I thought actually was something I certainly would agree with. I think we got into neuro through immunology, basically with MS. I mean, MS is really an autoimmune disease, and we're in things like lupus and ALS. So I think it's a natural fit. Now, immunology is quite big, and of course, inflammation is popping up everywhere as a problem, even in the Reata drug, actually. So I think we can actually build upon immunology. You know, I don't see us, you know, just because she's from Genentech, we're not going to get into oncology, that's for sure.
But I, I do think, you know, the rare diseases, parts of, immunology, which is a pretty vast area, probably narrow that down to neuroimmunology. Still the neuropsychiatry and, and, and obviously Alzheimer's, because with Alzheimer's, we aim to be, with our partners, a leader in Alzheimer's, and LEQEMBI is only the first step in that, that journey.
Okay, great. You also mentioned, you know, looking externally, you have the Reata acquisition, but how do you think about business development from here? Is this, does this kind of put a pause on activity, given, you know, the size of that and integration, and you have a launch to think about, or is this something you can parallel process and we should still expect, you know, some normal course of business development here?
... Well, I think, my CFO will say that I probably spent the budget on acquisitions for a while. So I think we will shift a lot more to probably more early stage business development, phase one, phase two. I also want to transform our research organization into a more collaborative organization. It is to a degree, but we're in the most prolific biotech communities in the world, and I think we can do an awful lot more with equity investments and collaborations in an early stage in research. So, I think Adam's going to be pretty busy with that.
Okay. Maybe the other piece you talked on is just the fit for growth strategy here and, you know, rebasing the, the cost structure of Biogen more along, the peer group. I think one of the pushbacks I hear from clients is just how can you guys do that and also invest in both the LEQEMBI launch and the Reata launch, and still, you know, come out with a good commercial outcome, I guess? So how do you think about that side of the coin as not just taking the cost down, but the investments required to really make these, these launches a success?
You know, I think I keep telling my team, one of the most underestimated words in any book on leadership you'll ever read is the word and. It's being able to do and is really what separates, you know, people from being really terrific or not. You know, you have to manage the short term and the long term. You have to manage innovation, and you have to be cost-effective. You have to manage your cost, and you have to launch successfully. And yet there's an awful lot to how you do that. We have actually had, surprisingly, some investors say, "Are we cutting too much?" And I would assure everybody that that is certainly not the case. Less than, I think, 10% of the headcount that will depart is actually customer facing.
The reality is that when you have companies that have an awful lot of money, and, you know, money was certainly very present when we had TECFIDERA. We had $5 billion of profit more in 2019 than what we have today. And when you have a lot of money, you get into an awful lot of activities and a lot of layers of management. We have an average span of control of three. So part of this is reducing costs to be more in line. All we've done is benchmarked with our peer group. We're not looking to be best in class in cost cutting, but we do have to be competitive. But there's also a question of agility.
You know, if you have a span of control of three, someone has to ask their boss, who has to ask their boss. When I talk to biotech companies who want to do business development with us, they say, "Boy, Biogen loves to do an awful lot of meetings." And, you know, if you have a lot of people, you'll have to do an awful lot of meetings. And, and part of it is because nobody can make a decision. And so this is about empowerment, it's about agility, and it's also about retooling some of our capabilities because we have been in really essentially a multiple sclerosis company for 45 years. This is really an opportunity to reengineer and transform the company, and it also has a transformative effect on our bottom line.
Okay, great. Appreciate it. You know, the other topic that I think, you know, comes up more recently is just the Eisai relationship. And so maybe give us an update on kind of where that stands. And as you think about, you know, the forward progress of that relationship, again, you guys have, you know, other assets coming up through the pipeline. So, like, where do those fit in the broader scope of strategic direction of the Eisai collaboration?
Yeah, it's quite an interesting relationship. You know, the company's been working together for eight to nine years now, and when you think about the scale of the investment that these two companies undertook in developing these Alzheimer's antibodies, you know, you're thinking about... We literally spent $ billions on just the clinical trial development cost between ADUHELM and LEQEMBI. Plus, you know, spent another couple billion on a factory to make it. And so these were big bets for companies that are certainly nowhere near the size of Pfizer. And so when you're making those big bets, there has to be an awful lot of trust in each other. Obviously, the ADUHELM situation was pretty unfortunate, to say the least, and I think that strained relationships.
But I, I would say, today, that relationship is, is thriving again. I've known the CEO of Eisai for, for many, many years, and, and, and that's an important relationship because of the way Eisai also, operates. We have our governance teams, but, we talk regularly, multiple times a month. And what is important, though, is this launch of LEQEMBI is, is pretty much unlike any other launch I have seen. You know, I, I have talked about the fact that this is only the second time in my career that I've actually seen the, the creation of a whole new category. And the relevance of that is pretty important because most times you launch a drug, you've got patients in a doctor's office who are being treated with something. It may not be very good, but they're there.
Here, we're talking about now neurologists who are already busy doing a lot of other things, and suddenly now we've got a wave of patients who are wanting to come in. And think about what that means in the doctor's office. You've got to now first do an assessment of this patient to see whether they've got MCI or mild dementia. And they have to make sure that the mild dementia is actually caused by Alzheimer's and not something else. So, you know, you're talking at least an hour of time in the physician's office, probably several weeks to get an appointment to see one. Then the physician's got to say, "Am I going to send them to a PET scan?" Well, what about the reimbursement of the PET scan? It is reimbursed, but there's still some confusion out there in the marketplace.
Or I go to have a lumbar puncture. Now I've got to explain to the patient about the lumbar puncture, which, as we all know, is not a, not a picnic. Then we got to find the infusion centers, and I've got to monitor the patients with MRI. So this is a, logistically, a major exercise, and we're seeing variability out there. You know, you've got centers like Duke that have been way ahead of the game, compared to everybody else and are really moving forward on that. Other centers are catching up. Individual practices, this is something that they're, they're all working through. So there is an element of... you know, we need the infrastructure to grow, but we need all of these processes to actually take place. There certainly seems to be demand there.
I think we're confident in the demand. I think we're confident in the fact that physicians actually want to treat these patients. The CMS has moved quickly, actually, and that in some ways, it shouldn't have been, but kind of caught everybody off guard because now we can go. There's no limitation. I mean, the registry seems to be pretty easy to operate. So, this is now a question of filling the pipeline and pulling the patients through. And, you know, ultimately, we will see that, and ultimately, all of these physician practices will get good at this and understand this. But it is a heavy lift at the start. And, you know, I think we'll start to see that as we get through towards the end of the year.
I think nothing that we're seeing says that the Eisai guidance can't be met, which is 10,000 patients by the end of their fiscal year, which is the end of March.
Yep. Okay. I mean, as you think about the lift requirements, I mean, how maybe any metrics in terms of progress that you can provide us with, as you think about, like, the number of centers that are up and running? I mean, we talked to a vertically integrated center. This is a community practice, not like Duke, but there it's pretty easy. Like, they have everything in-house. You know, it sounded like it takes about three weeks to get a patient on therapy or infused. They can do all the scans. But you just talk through all the logistics, and if you don't have everything in-house, you've got to coordinate across all these.
You know, how long do you think that process will take for the majority of your centers before you can see the majority of those centers have a protocol in place so that they're up and running, and it's, you know, a three-week process or something to get a patient on drug?
Well, I mean, the key metric really is the site activation and the site readiness. And, you know, we've gone out to see 700 centers today, you know, going through the P&T committees. So they're getting the reimbursement and weighing through all of that. I think, you know, the field force is just really busy on all of the logistics and getting that through.
So I think it gets more and more, and that's why I think, you know, in some ways, having the target of 10,000 at the end of the first quarter is more of a relevant benchmark because we know it's gonna be choppy up before that, and there'll be some centers that are off to the races and some that will take longer, and it's kind of hard to predict, to be honest, how fast that's gonna go.
Okay, understood. And one other question we get is just, obviously, you have the JV across both companies. How much visibility on, you know, a weekly basis do you have in terms of all these key metrics? Like, are you getting the data real time like Eisai is, or are you guys getting it on a lag? Again, I think investors are trying to understand, like, how much data are you getting and at what frequency from a launch perspective?
I think the collaboration has been great now with the companies, and we've actually worked with Eisai, really leveraging the experience of ADUHELM. You know, although ADUHELM never really got out there in the marketplace, Biogen actually has all this expertise of how do you assess a site? What are the key metrics that we need to look at? We actually used a consulting firm to go back and actually capture the learnings, and we have shared those with Eisai. So we've been working with them on the development of the key metrics that we want to watch and share. It is, you know, still very much news from the field that really is driving this. But as I say, we don't really see anything on the demand side here.
It is really the logistics question.
Okay, got it. What, I guess the other, you know, relevant question would be, and it's just around the subq formulation, obviously. I guess I had underappreciated the, you know, once-monthly dosing versus every other week dosing that donanemab has as being maybe somewhat of an advantage. You guys have the advantage of maybe less ARIA with LEQEMBI, and so a physician survey we did suggest about equal market share over a couple of years. And so I guess maybe what's the importance of subq, and are you confident in terms of, you know, the path to market for the subq formulation?
Yeah, I think you have to step back and say, how... What's the treatment—how's the treatment of AD really going to evolve, right? So remember, until we really had the Clarity study, we hadn't really had the definitive evidence that actually reducing plaques had a benefit on cognition, right? So everybody's looking at kind of this 18-month period and, you know, we reduce the plaques. And we only studied in patients where we actually had symptoms. You know, so we started with what we thought were early-stage patients with MCI or early dementia. But in actual fact, those aren't early patients at all. And then, you know, now the immediate question is: Well, we removed the plaques, what happens then? You know, the plaques come back.
So, you know, I think we're gonna see a complete change in the treatment paradigm over years, where on the one hand, you're gonna see a maintenance market, you're gonna have a plaque-clearing market, and, you know, we have this AHEAD study that's going on. What you'd really want to do is actually get people before they're symptomatic. There are probably people sitting in this room who have plaques forming in their brains, and they don't know it, right? And that's where also the development of a blood diagnostics will help. You know, there are some neurologists who are saying that, you know, we'll probably have p-tau in the normal blood bank of tests that we all do when we go in for our annual checkup.
So when you put that in that context, the subq becomes quite important, right? Because I think it's less important if you're looking at that plaque clearance phase. But if you're gonna be on this drug potentially for multiple years, then the subq is clearly an awful lot more convenient. So, you know, the intent is to have a filing by the end of Q1 of next year and doing all the work for that. And I do think, though, you're gonna see different patients at different stages. I think there's, first of all, there's more than enough market for two drugs. And exactly how they work and where they're used is going to evolve.
Remember, you know, right now, donanemab has a very limited space of time in which it can work. So that whole spectrum that we just talked about, donanemab, isn't really going to play. Now, Lilly, of course, isn't sitting still. They're thinking about that too, and they have other antibodies that are coming along.
Okay, makes sense. Again, you mentioned the blood-based diagnostic, obviously, you know, really important when you think about the longer term, even diagnosing earlier in the treatment paradigm. So what's the best guess in terms of when something could be available on that front?
The blood diagnostic?
Yeah.
Well, I mean, they are available now, but they haven't really been validated. In an ideal world, we'll get them validated to a point where we could replace the PET scan and the lumbar puncture, right? Because that would have both a patient convenience, but also a cost benefit for the whole system. Because, you know, in addition to the drug, you've actually got quite a lot of ancillary care. And that would also give you the confidence to actually diagnose someone presymptomatic. Now, we are using the C2N diagnostic, actually, in the AHEAD study to help find patients, but of course, that's still being validated with PET scans.
Yeah. So would that be the first validated data set that we should think about, I guess?
Yeah, I think there are... All of the diagnostic companies are now working. I mean, you know, the diagnostics has been around, but until you actually had a treatment, no— there was no commercial market for the diagnostic. Now, there is, and I can tell you, Quest and Labcorp, and a bunch of other companies, are all scrambling to get the data for these diagnostics. But, realistically, it's probably still a couple of years before we see-
Okay.
Them fully used.
One, and one more on, on the imaging side is the, on the PET scan reimbursement. So I know that NCD was revoked, and so now it's at the local MAC level. And I know each, I forget, I think there's 14 MACs around the U.S., but each has to kind of make an individual decision. Is that process fairly far along so that PET is not a, a kind of gating item anymore on the reimbursement side?
That's where there's still a little bit of a confusion. I mean, our understanding is certainly one PET scan in a lifetime is reimbursed, and it because it's also required under the terms of the the LEQEMBI reimbursement. Separately, the, you know, PET scans are controlled by their own, and that's where there is this change that is in progress, but that hasn't completely played out. And so the MACs don't have that ability today, to do that, as I understand.
Okay. Maybe just the last one on the Alzheimer's space. You talked about tau as another target. You're going to have some data at CTAD. You know, I'm assuming that's part of the strategy to stay at the forefront of Alzheimer's care. Maybe talk about where that fits into the strategy, and then anything else, you know, behind the scenes that you guys are doing to make sure that you and Eisai continue to be at the forefront here.
Well, you know, again, basically, LEQEMBI is the first breach in this wall, right? I mean, we've all been throwing stuff at this wall, trying to find out how do we make a difference in Alzheimer's without success. I mean, tens of billions of dollars of research and development went into trying to find something, and this is the first time where we actually saw something that actually had an impact on cognition. But we all know that, you know, we'd like something that does even more. And so, you know, the question is, can we do more with more effective antibodies? But we're already getting, you know, pretty significant reduction of plaque. So then you start looking at other mechanisms. tau is clearly a major factor in the severity of the disease, as we know.
A lot of experts out there are more excited even about tau than they are about Abeta. So that's a logical one. Tau is so, you know, acts intracellularly, so you need a drug that can go after this intracellularly. That's why we think our ASO is very promising. But we're also looking earlier. We know that microglia and inflammation play a role, so we have a program in TREM2, for example. We are working with some of the diagnostic companies, also even for tau and developing biomarkers. So certainly, the goal of both Eisai and Biogen is that we will maintain leadership in Alzheimer's. I mean, there's-- I mean, it's bumpy today, but this is going to be a very significant market over time.
You know, we need to make sure that there are other treatment options available to patients. Do you combine a tau and an Abeta at some point? We want to make sure, first of all, we can demonstrate the benefit of that BIIB080 on its own. But then a logical question is, does it make sense to combine? Most complex diseases, you end up with combination therapy, right?
Yep, makes sense. Okay, great. We talked about, you know, high-level Reata, but maybe just walk us through kind of, you know, timing of the deal closure, and then as we think about the commercial rollout, what are you guys doing to ensure, you know, commercial success? Because obviously, this is another important launch that investor community is going to be focused on as we head into 2024.
Yeah. So Reata, you know, we external growth was already in our Q1 announcement about where our priorities were. Partly because, you know, we knew that both LEQEMBI and zuranolone are non-conventional launches, and we just felt that we needed something else that could help us with a return to growth. Also, you know, it has certainly been my view coming into the company, neurological diseases are extremely important, have high unmet need, but they are very risky and very high cost.
While we don't want to abandon that, we were looking to try to diversify a little bit away from that, to reduce the risk of what we do, to be able to do phase two studies that actually give you some indication of whether the phase three is going to work or not. And so, you know, moving into rare diseases, doing more in neuropsychiatry, going back to our roots a little bit in immunology. And so that was sort of a goal, and so Reata really helps us in that, in building out the rare diseases. This fits perfectly with SPINRAZA. We have something like an 80% overlap for our rep top rate. And, you know, actually it provides potentially higher sales growth in the early years.
And of course, it is, it's gonna be, I think, quite profitable, given that you don't have to spend as much as certainly we do with MVD. So I think it's gonna be transformational financially over the coming years for the company. You know, people always get concerned about how you pay for things, but you know, I was talking to one investor, and she was surprised that I said, "Well, you know, for me, the IRR has got to be bigger than our WACC." And that's sort of... I don't normally hear that in the biopharmaceutical world. But this actually is a transaction that also makes financial sense. So in terms of that, we're expecting to close in the fourth quarter.
We actually have a, the Hart-Scott-Rodino day is today. So, we'll find out, I guess today, whether we get a second request or not, and if we don't, we should be able to close fairly soon. We want to do two things with the integration. One is, obviously, not disrupt the launch, and so I think we will have a smooth transition under Alisha's team in the U.S. They have about 27 reps. We'll bring all the 27 reps in and make sure... Because one of the things I don't want to do is also disrupt the success we've had with SPINRAZA.
You know, sales reps always go for the shiny new toy, and so I want to make sure that I don't create any kind of distraction from SPINRAZA. And then obviously, we're focused on the European launch. This is a product that's going to be like Biogen. This isn't one where 60% of the sales are in the U.S. This is actually one where the international aspect is important. We've had 26 countries request drugs from us, and so there's a real interest all over the world. Latin America actually could be quite a significant market for us as well. There's believed to be, I think, Reata has shared that they believe there's 4,000 patients in Latin America alone.
And then, actually, I think there is a-- there's an interesting thing in the pipeline there. I mean, first, if you look at this NRF2, which is the, you know, the driving mechanism for SKYCLARYS, that was also the mechanism, the putative mechanism for TECFIDERA. And Biogen never really explored that further, but we have an opportunity to go back with that, and we're looking at, can we do things in ALS with this, possibly with Alzheimer's? There's also a product for diabetic neuropathy. I'm quite interested in that because I was involved with, you know, initiatives with GSK many years ago. We did a lot of the same experiments. And, you know, the animal experiments actually translate pretty well in efficacy. The problem in this space has been safety.
Safety, you know, looks good, so if we have that, that could actually be quite a significant opportunity for us as well. So I think we'll keep a small unit in Dallas on the research and development side.
Okay. And just maybe confidence in EU approval. I know there's been some discussion among investors and kind of, you know, that front, and so maybe just speak through, you know, next steps on the EU side and confidence in approval.
Yeah, obviously, we had access to all of the documentation with the agency under a confidentiality agreement. Obviously, we're still separate companies, and I can't say anything publicly that Reata hasn't already shared. Obviously, the way we look at it is the primary analysis was statistically significant, and then the agency had a question around durability, and so they had this three-year extension study and post-hoc analysis, but they also stopped the drug. People started the drug again. And you see a nice consistent separation between the placebo group and the treatment group. So I think we believe very strongly in the efficacy of the drug. There's no guarantees, but I'd say we're able to do due diligence and we're pretty confident.
We can't be 100%. What I can tell you is our financial analysis used a risk-adjusted probability of success on getting approval when we did our IRR analysis.
Okay. Great. Can you get that IRR above WACC without EU?
Pretty close, actually.
Okay. Okay, great. Well, I think we're up against time, but thanks so much, Chris. Really appreciate it.
Thank you.