Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen First Quarter 2019 Financial Results and Business Update. Thank you. I would now like to turn the conference over to Mr.
Matt Calistri, Vice President, Investor Relations. You may begin, sir.
Thank you, and welcome to Biogen's first quarter 2019 earnings conference call. Before we begin, I encourage everyone to go to the Investors section of bhajan.com to find the earnings release and related financial tables, including a reconciliation of the GAAP to non GAAP financial measures we will discuss today. Our GAAP financials are provided in Tables 12. Table 3 include the reconciliation of our GAAP to non GAAP financial results, We believe non GAAP financial results better represent the ongoing economics of our business and reflects how we manage the business internally. We've also posted slides on our website that follow the discussions related to this call.
I would like to point out that we will be making forward looking statements which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. On today's call, I am joined by our Chief Executive Officer, Sheldon Atos, Doctor. Michael Ehlers, EVP of Research And Development, and our CFO, Jeff Capello.
We will also be joined for the Q and A portion of the call by our Chief Medical Officer, Doctor. Al Sanrock. Now, I'll turn the call over to Michelle.
Good morning, everyone, and thank you for joining us. First, let me start with some financial highlights. Biogen started 2019 with 1st quarter revenues of $3,500,000,000, an increase of approximately 11% compared to the same period a year ago. First quarter 2019 GAAP earnings were $7.15 per share, an increase of 29% versus the same period a year ago. First quarter 2019 non GAAP earnings were $6.98 per share, a 15% increase versus the same period a year ago.
These results were driven the resilience in MS, progress in our dual launch of SPINRAZA expand our anti TNF biosimilar success in Europe. Create a leaner and simpler operating model and prioritize our capital allocation efforts with the goal of maximizing shareholder returns.
Let
me for patients and return for our shareholders. In addition to investing in our organic pipeline collaborations, and acquired programs, we have made strategic investments in our operations, our biosimilars joint venture, our next generation manufacturing facility that we are building in Solothurn, Switzerland. We have also taken measures to unlock capital that can be redeployed for higher return, such as our agreement to sell our Hill Rod Denmark Manufacturing operations to Fijifilm for up to $890,000,000. In addition, we have allocated capital with the proposed acquisition of Nightstar Therapeutics, Following the discontinuation of aducanumab, we viewed repurchasing our own share as an area with high potential return and announced a $5,000,000,000 share repurchase program. So far in 2019, Biogen has repurchased approximately 4,500,000 shares for approximately $1,100,000,000 under our previously announced 2018 share repurchase program.
We have $1,000,000,000 remaining under that program, plus $5,000,000,000 from our new repurchase program announced in March. We are committed to maximizing towards the areas we believe to be of the highest potential return, something that demands a thoughtful approach of both the short and the long term. Capital allocation includes the investment we have made in our pipeline. Over the past 2 years, we have added 13 clinical programs and most recently announced our plan to acquire Nightstar Therapeutics. When we articulated our strategy almost 2 years ago, we identified 4 core and 4 emerging growth areas.
As we widen our lands to diversify, we have made meaningful progress towards this diversification and have entered into new therapeutic areas, while building depths in our core growth area of neuromuscular diseases and movement disorders and potentially accelerating our entry into ophthalmology. In addition, we continue to advance other assets and pursue therapeutic adjacencies with scientific promise. Today, we have 23 programs in clinical development, including BIIB 98, which has been filed with the FDA, and we expect 10 mid to late stage clinical readouts by the end of 2020. In addition, 2 more mid to late stage clinical assets, assuming completion of the Nightstar acquisition. Let me now address 3 critically important topics.
First, the discontinuation of aducanumab and its short term implications. TECFIDERA IP Challenges and the outlook for SPINRAZA. First, I will address the discontinuation of aducanumab. We are in the business of discovering and developing breakthrough treatments to meet unmet medical needs. The unfortunate reality is that the pursuit of this objective is not always successful.
Aducanumab are a terrible disappointment for the patients and families desperately hoping for a scientific breakthrough. As scientists, researchers, medical professionals, and as humans, we share this disappointment. We followed the science and the outcome was not as we hoped, but we followed the science. I am incredibly proud of everyone at Biogen involved in this journey. We believe that the learning from the aducanumab trials will better position us to potentially attack this terrible disease successfully in the future.
Importantly, for our remaining programs focused on targeting beta amyloid BAN2401 and elenbecestat, We are analyzing the results from the Phase III studies of aducanumab and the Phase II study of BAN2401. The learnings from this data will inform our view of the development of BAN2401 and elenbecestat. We plan to continue to advance our tau programs in Alzheimer's disease, BIIB09276 and 80. Beyond the disappointment of aducanumab, this outcome takes nothing away from everything else we have accomplished. What we aim to deliver in terms of operational performance over the near term, what we believe we can accomplish in the future with the rest of our pipeline, Biogen is the world's leading neuroscience focused biopharmaceutical company.
We intend and expect to remain we will also continue to progress We will continue working towards our goal In the short term, we remain focused on solid quarter over quarter execution financial discipline and our high return capital allocation priorities, and we will continue to pursue opportunities to improve business performance, explore indication expansions, look for ways to accelerate time to market for our clinical programs, optimize our clinical resources and manufacturing capacity. Biogen has key competitive advantages. We have deep scientific and clinical development expertise in neuroscience, global commercial expertise, including market access, as evidenced by a leading MS SMA and European anti TNF biosimilars commercial portfolio world class biologic manufacturing capabilities and last but not least, a highly talented and energized team fully committed to realizing the value of the investment we have made in our organic pipeline, collaborations and acquired R and D with the goal of delivering the highest return to our shareholders. As we have communicated in the past, our strategy is long term leadership in neuroscience. That is still our reality today.
Now I will address TECFIDERA intellectual property. 1st, we appreciate that there are many questions regarding our U. S. Intellectual property for TECFIDERA, which is being challenged in an interpractice review or IPR, in the Patent Office and Under Litigation in District Court. Let me remind you that our 514 patent covers TECFIDERA and expires in 2028 has been very carefully scrutinized by the U.
S. Patent Office multiple times. There was already an successful in an interference proceeding. We continue to believe we have valid patents Nonetheless, we are appropriately preparing for all possible outcomes. Importantly, ahead of the outcome of the IPR and District Court and the litigations, we shall have the opportunity to launch VUMERITY a novel oral fumarate disease modifying treatment that has the potential to be another important choice for MS patients.
The FDA has accepted the NDA filing of Emerity and we expect a regulatory decision in the fourth quarter of this year. VUMERITY has a composition of matter patent with a base expiration date in 2033. It is a priority that we appropriately maximize the potential of Vumerity. Finally, I will address the outlook for SPINRAZA. Many of you are focused on the potential of upcoming competition for SPINRAZA.
While we welcome new options for patients, we continue to believe that SPINRAZA will remain the standard of care in SMA for years to come. There are approximately 7500 patients on SPIRZA Worldwide including the EAP and clinical trials with over 7000 patients having real world experience in the post marketing setting. We have clinical data following patients for up to 6 years the efficacy and safety profile of SPINRAZA in the post marketing setting has been viewed very positively by patients and physicians. And we believe the new mature study of presymptomatic infants demonstrates the remarkable efficacy profile of SPINRAZA. Overall, we expect SPINRAZA to continue to grow as we aim to reach The Biogen team is standing up proud while taking the current situation very seriously.
As always, we are committed to working for patients with unmet medical needs and maximizing shareholder value creation by investing in the areas that we believe have the highest potential return. I will now turn the call over to Mike for a more detailed update on our recent progress
Thank you, Michelle, and good morning, everyone. Diseases of the nervous system are the leading cause of disability and the 2nd leading cause of death worldwide. The burden and unmet medical need in neurological diseases continues to grow. We remain committed to developing effective differentiated medicines for these devastating diseases, and we believe that our focus on and asymmetric capabilities in neuroscience position us to lead in this critical area of medicine. Before I review recent progress within our pipeline in greater detail, let me first elaborate continue to engage and emerge, the phase 3 study is designed to evaluate the efficacy and safety of aducanumab in patients with mild cognitive impairment due to Alzheimer's disease, and mild Alzheimer's disease dementia.
The decision to stop these trials was based on a futility analysis conducted by an independent data monitoring committee. The pre specified futility criteria were defined as less than 20% conditional power to meet the primary endpoint of both studies. The recommendation to stop these studies was not based on safety concerns. Further analysis of these data has demonstrated that treatment with aducanumab resulted in a dose and time dependent reduction in cerebral amyloid deposition behavior of aducanumab across doses and cohorts in these 2 trials. As part of the decision to discontinue Engage and IMerge, the EVOLVE Phase 2 safety study and the long term extension of the PRIME Phase 1b study of aducanumab have also been discontinued We have also decided not Alonset of Alzheimer's disease at this time.
We appreciate that these results raise questions about the precise role of aggregated forms of beta amyloid in this patient population. We continue to analyze the data from ENGAGE and EMERGE to inform our view of BAN2401 and elenbecestat our programs being developed in collaboration with Eisai. While disappointing for patients, families, and the Alzheimer's community, We believe that meetings to advance the fields understanding of the neurobiology of Alzheimer's disease and help guide ongoing research. As a leader in neuroscience, we remain committed to our goal of developing novel therapies for the treatment of Alzheimer's disease. We believe the Phase III results for aducanumab limited read through to our portfolio of TAO directed therapeutics.
Accordingly, we are continuing to advance BIIB092 or Gosuranumab, an anti tau antibody in phase 2. BIIB076, a distinct anti tau antibody in phase 1, and BIIB080 an antisense oligonucleotide targeting tau currently in phase 1 being developed in collaboration with Ionis. Importantly, 2 years ago, together with Michel, we articulated our goal of becoming the leader in neuroscience by building and diversifying our portfolio beyond Alzheimer's disease. Since then, we have made meaningful progress toward that goal by adding considerable depth across our core and emerging growth areas. Specifically, we have added 13 clinical programs since the beginning of 2017, including 2 that have achieved proof of concept and 3 that have achieved proof of biology.
These include programs in multiple sclerosis, Alzheimer's disease, progressive super nuclear policy, ALS, stroke, epilepsy, cognitive impairment associated with schizophrenia and neuropathic pain. And with our planned acquisition of Nightstar Therapeutics, we have the potential to add 2 mid to late stage asset for inherited retinal disease. Today and not including Nightstar, we have 23 programs in clinical development including 6 programs in phase 1, 13 programs in phase 2 and 3 programs in phase 3, as well as BIIB098, which has been filed with the FDA. This represents a substantial expansion and diversification of our each with significant potential to address some of the most debilitating diseases of our time. Turning to our proposed acquisition of Nightstar Therapeutics, We are extremely excited which there have been no treatment options.
This acquisition would accelerate our entry into ophthalmology with the potential to deliver a first in class adeno associated virus based gene therapies to patients suffering from severe retinal diseases. Retinal degeneration shares many characteristics with degenerative diseases of the central nervous system, and we therefore see positive synergy in pursuing treatments for inherited retinal diseases that leverage our scientific and clinical capabilities. Nightstar's lead drug candidate NSR rep-one targets choroideremia a rare degenerative disease that inevitably leads to blindness for which there are no current therapies. In phase 1two trials, treatment with NSR REP-one via targeted subretinal injection was associated with a higher rate of maintained vision and in a subset of patients, a meaningful improvement in visual acuity suggesting that NSR REP-one has the potential to significantly alter the course of this disease. Based on compelling proof of concept data in the Phase III studies, Nightstar initiated the Phase III STAR trial.
We expect enrollment in this trial Of note, NSR REP-one has received regenerative medicine advanced therapy or RMAT designation from the FDA, which confers all the benefits of both fast track and breakthrough therapy designation. Nightstar's 2nd clinical stage asset is NSR RPGR for X linked retinitis pigmentosa, or XLRP. Like NSR Rep1, NSR RPGR is an AAV based gene therapy delivered by targeted subretinal injection. Data from a phase 1two dose escalation study showed promising signals of early efficacy, including increases in central retinal sensitivity as measured by microperimetry. A Phase twothree dose expansion study of NSR RPGR is currently enrolling and assuming the transaction closes, we would plan to targets targeting Stargardt disease, the most common form of inherited juvenile macular dystrophy, best bit of a form macular dystrophy, and additional programs targeting other genetic forms of retinitis pigmentosa.
These diseases, which inevitably lead to blindness and the associated severe disability, are amongst the large group of inherited retinal diseases, which have been estimated to afflict up to 200,000 patients in the U S alone, many of which may be amenable to similar gene therapy solutions. Clinical team at Nightstar with the goal of bringing breakthrough therapies to patients to slow or halt blindness across a range of inherited retinal diseases. Turning to our progress in neuromuscular disorders. Last month, we dosed the 1st patient in the phase 3 valor study of BIIB067 or TOFerson an antisense oligonucleotide for ALS with mutations in superoxide dismutase 1 were SOD1. BIIB067 selectively targets the mRNA for SOD1 to reduce the levels of toxic mutant SOD1 protein that is thought to be the causative agent in this autosomal dominant genetic form of ALS.
VALOR is a continuation of the phase 1two single and multiple ascending dose study of BIIB067 for which we have previously communicated proof of biology and proof of concept. VALOR is enrolling to assess the efficacy and safety of BIIB067 versus Placebo, and the primary endpoint of this study is an analysis based on the ALS functional rating scale revised score. In parallel, we are in active discussions with regulators as we collaborate to further define scope of the clinical data package required to support the registration of BIIB067. Very limited treatment options for this devastating genetic form of ALS We believe the data from the VALOR study have the potential to support a rapid path to patients. Moreover, given that BIIB67 engages RNA's H mechanism, to degrade endogenous MRNAs and hence decreased levels of the target.
We believe that these data have positive implications for additional antisense oligonucleotides that we are advancing in our pipeline together with Ionis that similarly utilize RNA's age dependent mRNA degradation. Including BIIB-seventy eight, which targets C9orf72 for ALS, BIIB080, which targets tau for Alzheimer's disease and other tauopathies, and up to 2 new antisense oligonucleotides that could enter the clinic this year. Further, we believe these data exemplify the depth we are building in neuromuscular disorders. Including ALS and highlight the interconnectivity across our pipeline. We plan to present data from the single and multiple ascending dose portions of the phase 1two study of BIIB067 in the emerging science session at the American Academy of Neurology annual meeting next month, and you'll hear more specifically about our ALS pipeline at an R&D investor webcast on June 5th.
Moving to SMA at the 2019 Muscular Dystrophy Association Clinical And Scientific Conference earlier this month, We presented an encore presentation of data from the NURTURE study of SPINRAZA in presymptomatic infants with SMA. Highlighting the unprecedented efficacy profile of SPINRAZA, these data show patients on average achieving motor milestones consistent or nearly consistent with normal development. Specifically, as of May last year of the 25 infants treated with SPINRAZA in this study, 100% were live, none required tracheostomy or permanent ventilation, 100% were able to sit without support, and 88% were able to walk either with assistance or independently. We believe that SPINRAZA's efficacy profile including data on patients treated for up to 6 years support SPINRAZA as the standard of care in SMA. Even after the potential introduction of alternative modalities with significantly less data and outstanding for progressive supranuclear palsy or PSP and Parkinson's disease.
We look forward to the final readout for the phase 2 study of BIIB92 and PSP in second half of this year. BIIB092 is a monoclonal antibody targeting extracellular tau, with the aim of reducing the spread of tau pathology in the brain. And we are making strong progress with recruitment in the phase 2 study of BIIB-fifty 4, a monoclonal antibody targeting extracellular alpha synuclein for Parkinson's disease. We now expect to receive data on the primary outcome measure from the 1 year placebo controlled period of this study in the second half of twenty twenty. As Michel mentioned, we remain steadfast in our commitment to neuroscience while we continue to explore therapeutic adjacencies where we have existing assets and or expertise.
Importantly, we continue to progress our clinical programs in lupus and idiopathic pulmonary fibrosis specifically, we are advancing BIIB059, a humanized monoclonal antibody that binds BDCA2, a C type lectin that inhibits type 1 interferon signaling in plasma cytodendritic cells. We are currently evaluating BIIB059 in a phase 2 study in cutaneous lupus erythematosus or CLE, and systemic lupus arthomatosis, or SLE, with data expected by the end of this year. Moreover, we expect to work with our collaboration partner, UC be to agree on the details of a potential global Phase III program for dapirolizumab Pegol, an anti CD40 ligand pegylated fab in SLE. A previous Phase 2b study of Dapirolizumab Pegol and SLE demonstrated consistent and potentially meaningful improvements for the majority of clinical endpoints in patients treated with aprolizumabpegol paired with Placebo. Although the primary endpoint of this Phase 2b study to demonstrate a dose response at 24 week on the British Isles lupus assessment, group based composite lupus assessment was not met at p equals 0.07, we believe the totality of the phase 2b data supported proof of concept.
In addition, biomarker data demonstrated strong evidence of proof of biology. Daprolizumabpegol was well tolerated and demonstrated an acceptable safety profile. We believe that the Phase 2b data together with a post hoc analysis indicated a notable response in a refined population support a decision to advance to phase 3. Together with UCB, We intend to present these findings at a future scientific forum. So what do we expect from Biogen R&D going forward?
4 key priorities: focus on clinical trial execution and optimizing our resources with up to 10 mid to late stage readouts by the end of 2020. Diversification, including potential indication expansions, continued progress advancing our pipeline, including ways to accelerate time to market, and balancing the risk of our pipeline including a continued pursuit of late stage opportunities. On this last point, Let me elaborate on how we dedicated to converting differentiated biology into breakthrough medicines. That is the promise of innovation spawned from creative ideas and risks at the forefront. It is the incubator of future SPINRAZA and solutions for patients and families that change medicine.
As we advance our portfolio, we will continue to mitigate risk by seeking later stage assets, taking advantage of our unique capabilities in developing antisense oligonucleotide gene therapy to target causal genetic drivers of disease such as SOD1 and C9orf72 and familial ALS. Leveraging our depth of expertise in MS and SMA to expand our footprint in neurominology and neuromuscular disorders and deploying rigorous experimental medicine methods, including biomarkers of target engagement and disease activity to derisk early stage clinical programs. As we diversify and balance risk within our pipeline, we will also thoughtfully consider therapeutic adjacencies that synergize our core and emerging growth areas and where we have existing assets or expertise. Backed by a significantly expanded portfolio of clinical stage assets, We remain focused on our goal of developing transformative medicines for patients living with devastating neurological diseases. I will now pass the call to Jeff.
Thanks, Mike. Good morning, everyone. I'll now review our financial performance for the first quarter of 2019, starting with revenues. As Michelle mentioned earlier, we had a strong Q1 2019 from a revenue perspective. Total revenues for the first quarter grew 11% year over year to approximately $3,500,000,000.
Overall, our MS business delivered revenues of $2,100,000,000 in Q1 2019, including OCREVUS royalties of approximately $112,000,000. MS revenues in Q1 2019 decreased 2% versus the prior year without OCREVUS royalties, and were stable, including OCREVUS royalties. US MS revenues in Q1 2019 were impacted by a decrease in channel inventory approximately $170,000,000 compared to a decrease of approximately $140,000,000 in Q1 2018 and an increase of approximately $105,000,000 in Q4 2018. Global 1st quarter TECFIDERA revenues increased 1% versus the prior year driven by revenue growth outside the U. S.
U. S. TECFIDER revenues were impacted by a decrease in channel inventory of approximately $110,000,000 in the first quarter of 2019, compared to a decrease of approximately 80,000,000 We were pleased to for the first time in almost 2 years. Outside the U S, TECFIDER performed very well in Q1 2019 with continued double digit volume increases across most large European markets in Japan versus the prior year, somewhat offset by pricing pressure in several European countries. Q1 interferon revenues, including both Avnetx and PLEGRITY decreased 9% versus Q1 2018 due to the shift from the injectable platforms to oral or high efficacy therapies.
Within the U. S, Advix and PLEGRIDY were impacted by a decrease in channel inventory of approximately 45,000,000 compared to a decrease of approximately $60,000,000 in Q1 2018 and an increase of approximately $35,000,000 in Q4 2018. Tysabri worldwide revenues were stable versus the first quarter of 2018. Within the U. S, Tysabri revenues were impacted by a decrease in channel inventory approximately $15,000,000 compared to relatively stable inventory levels in Q1 2018 and an increase of approximately $10,000,000 in Q4 2018.
To Sabre's underlying performance improved in the U. S. With an increased share of both new and total prescriptions. Outside the U. S.
SABRI revenues increased 1% versus the prior year. Overall, despite the headwinds from channel dynamics, We were pleased with the continued resilience of our MS business in the first quarter and are focused on maintaining the resilience of this franchise in light of new competition entering the market. Let me now move on to SPINRAZA. Global first quarter SPINRAZA revenues increased 42% versus the prior year, increased 10% versus the fourth quarter of 2018. In the U.
S, revenues increased 19% versus Q1 2018, driven by continued patient growth. Compared to the fourth quarter 2018, U. S. Revenues decreased 5%, which we believe was driven in part by seasonality. Outside the U.
S, revenues increased 26% versus Q4, driven by continued new country launches and increased penetration across all major geographies. As well as a positive pricing adjustment in France, following receipt of formal reimbursement and timing of shipments across several international markets. The number of patients on therapy in the U. S. Increased 5% as compared to the end of the fourth quarter of 2018 and discontinuations remained relatively low.
In the U. S, we continue to make strong progress with adults. In the first quarter, approximately 50% of new starts were adults, increasing the total number of adult patients on SPINRAZA to over $1000, an increase of approximately 8% versus the fourth quarter of 2018. We saw a continued increase in the revenue contribution from maintenance doses this quarter. In the U.
S, approximately 75% of SPINRAZA units in the first quarter were attributed to maintenance doses as compared to approximately 65% in the 4th quarter. In the first quarter, approximately 10% of U. S. SPINRAZA units were dispensed through our free drug program, a decrease from approximately 15% in Q4. Outside the U.
S, the number of commercial PACE SPINRAZA patients increased approximately 24% versus the prior quarter. And there are approximately 210 patients active in the expanded access program. We recorded revenues from over 40 international markets in the first quarter. During the past quarter, SPINRAZA was approved in Argentina, Colombia, Taiwan, and China where SPINRAZA is now available for self paying patients. We also secured broad reimbursement in France and South Korea and our named patient sales program in Turkey, where we estimate there are approximately 1500 SMA patients.
Was expanded to cover Type 1, 23 patients. As Michelle mentioned, we believe the global opportunity for SPINRAZA is significant and even greater than we initially anticipated. We now estimate there are over 45,000 individuals with SMA in the markets where Biogen has a direct presence. For example, we now estimate that there are approximately 10,000 SMA patients in Latin America. Approximately 15000 to 25000 SMA patients in China approximately 3600 SMA patients in the rest of Asia Pacific.
These estimates were not factored into our original estimate of 20,000 SMA patients. SPINRAZA has now become our 2nd largest product as we've continued to execute well on growing our treated patient base. Let me now move on to our biosimilars business. Revenues this quarter increased 37% versus the prior year and 12% versus the prior quarter. Bennett probably has been strengthening its leadership position in countries as Germany, the UK, Denmark and Norway, shipping again more than 1,000,000 doses in the quarter.
In the first quarter, Flexabi exceeded 100,000 doses for the time in a quarter. For its 1st full quarter in the market, IMRALDI, which references HUMIRA exceeded 200,000 doses, with sales in 18 different countries. In general, the rate of Humira biosimilar adoption has been steeper than for the previous 2 anti TNFs, and our data indicate that IMRALDI is the market leading Humira biosimilar in Europe. As an example, in Germany, the largest anti TNF market in Europe, We estimate that Humira biosimilars have already captured approximately 35% market share, with Hermalji capturing about 40% of that share. Overall, our success outside the U S with MS, biosimilars and SPINRAZA has led to meaningful geographic expansion and diversification of revenues.
Specifically the proportion of our product revenues coming from outside the U. S. Increased from 39% a year ago to 44% in the first quarter of 2019. Total anti CD20 revenues in the first quarter increased 17% versus the prior year, primarily driven by OCREVUS royalties. Q1 was a particularly strong quarter for Rituxan due in part to channel dynamics and pricing adjustments.
As a reminder, our royalty rate on sales of OCREVUS resets at the beginning of every calendar year. Total other revenues in the 1st quarter increased 78% versus the prior year. Driven primarily by the sale of approximately $200,000,000 of inventory associated with the Bioverative spin off, somewhat offset by a decline in our other corporate partner revenues. As noted in our Q4 twenty eighteen earnings call, this sale of inventory represents most of the remaining hemophilia inventory that we have been holding for Bioverativ. Let me now turn to gross margin performance.
Q1 2019 gross margin was 83%, negatively impacted by the sale of Bioverativ inventory carried a very low gross margin. Q1 GAAP and non GAAP R and D expense were both 16% of revenue. Q1 R and D expense includes approximately $39,000,000 related to our agreement with Skyhawk and approximately $45,000,000 in trial closeout costs for Ducommunab. Q1 GAAP and non GAAP SG and A were both 15% of revenue. For the balance of the year, we expect a reduction in operating expenses of approximately 120 $25,000,000 related to aducanumab, with a net savings of approximately $80,000,000 for the full year 2019.
In Q1, we booked a GAAP loss of $116,000,000 associated with our agreement with Fuji's Ville related to the proposed sale of our manufacturing operations at Denmark. We expect to receive up to $890,000,000 in cash related to this transaction subject to certain working capital adjustments and other contractual terms. Q1 GAAP other income was $357,000,000, including $376,000,000 in net gains on investments. This includes a $321,000,000 increase in the fair value of our equity investment in Ionis that we made last year in conjunction with our expanded strategic collaboration. We continue to believe that this deal is a great example of how we aim to create long term shareholder value through strategic capital allocation In Q1, non GAAP other expense was $19,000,000.
In Q1, our GAAP tax rate was approximately 23%, negatively impacted by approximately 400 basis points due to the proposed sale of our manufacturing operations in Denmark. In Q1, our non GAAP tax rate was approximately 18% which declined from approximately 21% in Q1 2018 due to the remaining benefit of U. S. Corporate tax reform. We repurchased approximately 2,400,000 shares in Q1 at an average price of $2.68 for a total value of approximately 656,000,000 And so far in April, we've repurchased an additional 2,100,000 shares at an average price of $2.36 for a total value of approximately 492,000,000 As Michel mentioned, in the first quarter of 2019, our board authorized a new $5,000,000,000 share repurchase program.
This is in addition to the a $1,000,000,000 remaining under the share repurchase program authorized in August 2018, which now brings us to our diluted earnings per share In the first quarter, we booked GAAP EPS of $7.15, an increase of 29% versus prior year and non GAAP earnings per share of 6.98 percent excuse me, $6.98 per share, a 15% increase versus the prior year. We generated approximately $1,500,000,000 in net cash flow from operations in Q1. We ended the quarter with approximately $5,300,000,000 in cash and marketable securities and $5,900,000,000 debt. I'll now turn the call back over to Michelle for his closing comments.
Thank you, Jeff. The Biogen team is taking the current situation very seriously. And dedicating every effort to maximize shareholder value creation. I am inspired by the reaction of the team, and we now have SMA and biosimilars, while addressing the short term priorities already discussed, including the TECFIDERA IP challenge and preparing for the expected orders. Between now and the end of 2020, we expect continued progress as we aim to build a multi franchise portfolio, including Data readouts in MS, PSP, lupus, epilepsy, Parkinson's disease, ALS, pain, cognitive impairment associated with schizophrenia and stroke.
Potential regulatory approval in the U. S. For VUMERITY in MS and up to 10 new assets advancing into the clinic. Finally, I want to reiterate our commitment to maximizing returns to our shareholders and bringing innovative therapies to patients over the long term. These demands that we continue to allocate capital efficiently effectively and appropriately.
As we have demonstrated in the past, we will always strive to have an optimal capital structure as well as aim for superior returns from the investments we that everyone at Biogen is highly committed to making breakthrough treatments, while always being dedicated to maximizing the long term returns on behalf of our owners. With that, we
Your first question comes from the line of Ying Huang from Bank of America Merrill Lynch.
I want to ask one about your strategy on business development and M and A. In the wake of discontinuation of aducanumab Phase III, Does the management team feel more urgency to acquire more assets that are in a commercial or near commercial? And along those lines, does the board of directors also feel the same urgency to, conduct more M and A and transactions? Thank you.
Thanks for the question. As we communicated, we plan to deploy our capital to areas of highest tons for the shoulders. And we do believe that at the current stock price level, buying back shares is very important. We took aggressive steps to diversify our portfolio in the past, but in the context of our current cash flow generation, and the profile of our balance sheet, we can do both buying back and also conduct some BD M and A activities.
Your next question comes from the line of Robin Karnauskas from Citigroup. Please go ahead.
Hi, guys. Thanks for taking my question. And I appreciate you acknowledging all the concerns that investors have, including, Tuxedo and SMA. I guess my key question is, you know, while you acknowledge that, aducanumab failures, some of the reasons why we're so concerned, let's start with SMA, what gives you the confidence that if the oral product maintains its efficacy in more studies, that it won't erode SPINRAZA. And maybe specifically, you could you clarify maybe what percent of patients might be low hanging for for that product.
Maybe they're not as compliant or they're older patients and not as sick that are currently on SPINRAZA. Thank you.
So Robin, this is Mike. I'll start with that. I think it's still, look, it's still pretty early days with the data that we know from Rizdiplam, it's been relatively small numbers of patients in the 20s or 30s, but infants and later onset. They clearly generated some encouraging data on this in terms of efficacy. I think some of the open things that the field is looking to understand about this is the overall benefit risk profile, the degree of efficacy the extent to which that there's a manageable therapeutic index on this, these are all parts of that program and data that are still to really emerge.
The way that we kind of think about it is that, particularly through the nurture study, The data that we've generated with SPINRAZA really sets the bar for the degree of efficacy that's really going to define standard of care. So we think that's an important feature here. And we have such an extensive safety database in thousands of patients and patient years. And again, I think that sets the bar for what safety should look like. Much of this is going to have to play out over time.
Right now, we are very, very confident in SPINRAZA's profile in terms of safety and efficacy. And we'll have to see how the Risdiplam data set reads out over time.
Your next question comes from the line of Geoff Meacham from Barclays. Please go ahead.
Hey guys, thanks for the question. And for all the perspective on aducanumab, just had another one on SMA. In the U. S, can you add a little bit more detail to the new start trends? And do you think there is a warehouse effect in 1Q ahead of an expected of excess launch?
And then related to that, I mean, obviously, you guys have learned a lot from the SMA launch in the orphan space. Do you view this as a strategic asset? And by that, do I mean, I mean, do you look at the orphan space as a broader area for BD or is the emphasis still, from a BT perspective, neuroscience focus. Thank you.
Yeah. Hi, Jeff, it's Jeff. Thanks for the question. So as a reminder, we grew 18% year over year in the U. S.
And SMA. So pretty, pretty strong growth year over year. We did have a bit of a slowdown sequentially, which I think you're asking about. A couple of things to remember. 1, the our estimate PDiology in the U.
S. Is still 9000 patients. We're only 30% penetrated to date. And in the adult class, which is the largest class, 65% of the patients were only 18% penetrated. So we continue to do a good job executing.
We did a very good job this quarter. We continue to grow that adult class. We also had a drop in we had very low discontinuations. Having said that, we did see a slight decrease in the number of new patient starts. We actually saw the same dynamic happen when you look at the fourth quarter of 2017 to 1st quarter of 2018.
And we think part of that is due to the fact of seasonality, both with regard to new patient starts and maintenance doses. In fact, if we look at our maintenance doses, we did see less compliance in the first quarter, which we attribute to weather and the cold and flu season. So this is not that dissimilar from what we saw in terms of dynamics shifting from the fourth quarter 2017 to first quarter of 2018. So we think we continue to have lots of opportunity to grow this business in the U. S.
And of course, outside the U. S, we had a terrific quarter.
Concerning the second part of your question, thank you for asking. Based following the aducanumab setback, we gathered the team and we certainly, worked hard to maintain the focus on the operations and the progress from all sides of the company. And again, I'm impressed by the reaction of the team. If we step back and we look at our and reach portfolio that is materially improved compared with what it was 28 months ago. The core of our focus remains and we remain neuroscience having said that, We also look very carefully at the progress we are making in lupus with the 2 compounds that Mike spoke about and also idiopathic pulmonary fibrosis.
So this may point out adjacencies potentially. In immuno. You speak about rare disease. It's too early for the organization to state that clearly. We need to regroup as a team and we are doing that while we speak, share and align with the board and then come back to you.
And Jeff, I might add something to that too. I think you've raised a very good point about our SPINRAZA experience, I think, has been highly informative to us and in growing our capabilities in and around rare diseases, broadly speaking. I think when you look at the ability deploy innovative development plans when you look at the extent of regulator engagement and accelerated paths, when you look at the collaborative relationship that we've exercise in patient advocacy and patient support groups that have supported that. And then you look at the opportunity space in disease like SMA, which ends up being much larger than I think anyone had anticipated at outset. This points to kind of adjacencies Michelle was just talking about, which for programs we have in our portfolio, BIIB067, 7892, the proposed Nightstar acquisition all will provide positive synergy and give us another lens to look at additional external opportunities.
Just to conclude on this question, and adding to what Mike is saying. It's all about adding value and highest return for the shareholders and finding synergies with the core capabilities of Biogen the way others will not be able to deliver.
Your next question comes from the line of Michael Yee from Jefferies. Please go ahead.
Hey, thanks. Good morning. Appreciate the comments as well. Michelle, I guess a question for Michelle following on big picture strategy and the disappointment for Alzheimer's. Maybe you could talk about whether there is any change or pivot on 2 fronts.
1 is, the change in investment of capital into Alzheimer's, including BAN2401 or what how we should think about spending in Alzheimer's? And number 2, whether or not there can be anything you can do about realizing immediate shareholder value post Alzheimer's given where the stock price is at and how to think about where you are now? Thanks so much.
Thanks for the great question, Michael. So if we you step back and you'll recall what we said repetitively, the plan A was always prepare Biogen for growth even without aducanumab. So as I said, the FOX will remain on neuroscience based on the portfolio we have, but also on the adjacencies of all the programs we are developing for now, and we'll come back with more. If you look at what we have done, we have materially improved our pipeline. We are basically positioning the company for the future.
We have improved the operational performance and also the efficiency of operations and we believe we have the ability to go further. We believe we invested the capital over the highest return opportunity. We have an IP challenge that we need to solve, and we are working on that. And we do recognize our responsibility to shareholders to maximize the return over the long term specifically on Alzheimer's disease It has to be science driven. Finalizing to review and to digest.
So we have to wait for the team and the team of statistician and clinicians to look at the data so that we can best indicate, educate the course forward for the beta amyloid hypothesis and for BAN2401 and elenbecestat. And as I said, concerning the capital allocation and the share purchase, I think we've been pretty clear that at this level, we believe that this is an area with very high return opportunity for shareholders but again, in the context of the pristine balance sheet that we have, we can do more.
Your next question comes from the line of Cory Kasimov from JP Morgan. Please go ahead.
Hey, good morning guys and thank you for taking my question. I wanted to follow-up on the business development front and ask about the company's buying capacity at this point. At the beginning of the year, I believe you highlighted having roughly $42,000,000,000 in buying capacity through 2023. I'm curious if that has shifted at all post the buyback and other transactions. And can you comment how much capacity you believe you have to do something now as compared to over a 4 to 5 year timeframe?
Thanks.
So hi, Cory, it's Jeff. Yes, so we had mentioned back, I believe, was at your conference, that if you took The metric was if you took the cash flows of the company, at the end of the third quarter of 2018, and you annualize those, you dropped out the CVRs and then you looked at that over a 5 year period, that was a certain pool of cash. Then if you looked at the cash on the balance sheet plus leverage up to 2.5 times less the leverage we have today, that gave you the $42,000,000,000 of potential capacity. Assuming all stayed constant in terms of the business, which obviously is not the plan, the plan is to grow the business and grow those cash flows. So that's where we got the $42,000,000,000.
We once again had a very strong quarter cash flow wise. We did $1,500,000,000 in operating cash flow, And I would point out that this quarter was the final payment of the Fumapharm settlement of $300,000,000. So we're now beyond that settlement. So if anything, we believe that our cash flows will continue and we'll be in a strong position to leverage those cash flows, as Michelle had said, with regard to both buying back stock and being active from a business development perspective. So there'll be no lack of capacity.
So we believe that deployment
of capital at this level of price level should be on the share buyback. We believe this is a high return for everybody, and we believe in the value of our company.
Your next question comes from the line of Omar Raffat from Evercore. Please go ahead.
Hi, thanks for taking my question. Michelle, maybe just in a different direction. In listening to you today, I get a sense that the alkermes fumarate is more and more important to your MS strategy, perhaps than it has been in the past. Can you speak to that? Am I hearing it correct?
And also, should we reasonably expect a meaningful switch ahead of IPR decision? Thank you.
So from day 1, and this is the reason why we and acquire this asset is that it was meaningful and strategically important for the company. We have a CHF 9,100,000,000 franchise in MS, that is pretty resilient to date. And we continue to we want to continue to invest in that space. We believe that this Alkermes compound can eventually be differentiated we need to wait for some data readout in the context of the IP challenge. Certainly, this is very important.
It's a it will be premature to state on every any clear tactical plan or strategy for launch. But while we speak, we are working thoroughly on that. It's not that the organization is without any alternative but we remain confident on our
Please go ahead.
Hey guys, thanks for taking my question and thank you for all the color this morning. I just wanted to go maybe discuss the pipeline a little bit and I know you have the SOD1 data, which will be AAN. And then I just wanted you to talk a little bit more about the C9 or 72 program and like what confidence you've received from the SOD1 that gives you confidence in knocking down that untapped scan radiator as well? Thanks.
So Alethia, it's Mike. So I think one thing we've learned from the BIIB067 SOD1 program is a lot about how we can very reliably measure target engagement and a pharmacodynamic effect in terms of looking at the relevant, causative agent species and CSF like SOD1 and case, we are deploying a very similar approach with C9orf72. It's an earlier program. So this is now just in essentially, safety trials in this ALS patients. But we will be looking at similar types of things, target engagement lowering of the toxic species, and as well as assessing some of the same types of clinical measures.
We do think that the extensive experience we've gained in development over over time in ALS has significantly enhanced our ability to conduct and execute these trials efficiently.
Your next question comes from the line of Geoffrey Porges from Leerink. Please go ahead.
Thanks very much. I just want to clarify a little bit more what you're saying about 2401 elenbecestat. And particularly in the context of your expenses going forward, It was a bit surprising that cancelling out account amount was only about a 5% savings to your R and D spend. But if you discontinued, 2401 L and the stat, how much would totally you save from expected R and D? And secondly, could you just talk about the contractual flexibility you have to make that decision, or can you only suspend funding for those programs with the agreement of your partner?
Thanks.
So, Jeff, I'll start with, I guess, the back half of your question. And we disclosed this clearly in our filing. So our share of the expenses relative to both BAN2401 elenbecestat was $74,000,000 in 2017. That's just our share and $116,000,000 in 2018. And the amount is not creeps up a little bit in 2019, but not dramatically.
So that gives you a little bit of sense of kind of the run rate So should we decide and our partners decide not to move forward with those programs? Obviously, that expense would come out, but I think as we mentioned in the prepared comments, as we're going through Ducanumab data and we're still having conversations and we'll make those decisions and deliberations as they play out.
Okay, thanks.
Your next question comes from the line of Carter Gould from UBS. Please go ahead.
Good morning guys and thanks for all the color on the strategy and capital allocation front. Maybe ask one on sort of a near term pipeline. Coming back to BIIB092. I guess, Michael, can you give a little bit color on how you think about, clinical meaningfulness on the PSP RS scale obviously an indication for a lot of unmet need, but still some color on that front. And then just how you're thinking about potential read through to targeting tau across other tauopathies?
Depending on the outcome of this study in PSP?
Yes, great questions, Carter. Thank you for that. So, just the status of this is that we do anticipate getting data is a relatively large phase 2 study data by the end of the year. In PSP. The PSP rating scale is kind of the recognized standard across this field on areas of clinical meaningfulness We've been in active, collaborative dialogue with regulators on exactly the components of the scale and how to use that.
For a primary endpoint, but I think we're making really excellent progress on that. I do think that this this study is powered in a way with the right endpoint to detect a clinically meaningful, effect in these patients. We have to keep in mind that to date what we really know is that we've got very good target engagement in terms of measuring significant lowering of tau in the CSO. There's lots of stuff we still don't know, and this is a phase 2 study, so you have to keep in mind that is still a relatively early program where this is a largely untested hypothesis and thus it remains a risky program in that regard. But I would say Yes, if we're able to show and find that there's a clinically meaningful effect in PSP, I do think that this will have significant positive ramifications for our ability to intersect tau across many tauopathies.
I would also add and say that we have also consciously not just limited ourselves to, tau monoclonal antibodies in this regard. And that's why we're also, enthusiastic about our BIIB080 program in tau antisense oligonucleotide, which gives us a very different approach to targeting and lowering tau in tauopathies.
Your next question comes from the line of Phil Nadeau from Cowen and Company. Please go ahead.
Good morning. Thanks for taking my question. I did have a follow-up question on the on the broad strategy of targeting CNS diseases. I think you've very clear that, you want to maximize return to shareholders and it seems like based on the indications you're going after, that means major unmet needs. Where there's reasonably sized patient populations, but also, really increasing the return to shareholders involves the risk of success.
And as we look at Slide and the indications that are going to read out between here and the end of 2020. It kind of strikes me that not all those are actually most of those conditions don't have a determine mechanism of disease or the pathogenic mechanisms, not really well understood. So can you talk a bit more about how you assess the risk of success and failure when you're looking at potential indications to bring into your portfolio and whether that has changed at all post the failure of aducanumab?
So, we get started. Since 41 years that this company is in operation. Innovation, scientific excellence, what was at the forefront and is at the forefront of what we did and what we do and what we will do. And this is coming with some risk, and we know historically that there have been some setbacks But we also believe that nowadays, we are able to mitigate some of them with genetically validated pathways and also biomarkers, neuroimaging and other elements capabilities that we are building. Mike will give more color.
Yes, Phil, I think this is a very good question. It's a broad question. I think what we would say is, look, in this area, what we and detect is a significantly changing risk profile in the area. And we see this playing out in a number of dimensions and it's within things we're doing. And if you look broadly at the ecosystem, SMA being sort of the cardinal example of that, but it doesn't stand alone.
On this. This risk profile is changing. Where you're successful? There's a considerable high reward as we've seen with SPINRAZA. We are very focused on mitigating the risk level.
This is our overall portfolio. We do that in a number of ways Michel was talking about. It's partly by seeking later stage assets where we've got clinical data that points, to the promise and particularly objective clinical data where we can. We do go after genetic origins of disease. And this has been a big focus of ours with the extended collaboration with Ionis in leveraging the antisense oligonucleotide platform.
It's taking advantage of some of our other unique capabilities and depth of expertise in MS and SMA. And as we've been doing that, and grown the portfolio, we would note that of these things we've added by bringing in or identifying 3 of these deals were post proof of concept of these deals were post proof of biology. So that's an intentional strategy to really mitigate the risk across the portfolio. And I think whether you look at what's what's going on in, with in Biogen or in the field as a whole, you can look at disease after disease where these traditional views of the risk are breaking down SMA, migraine, muscular dystrophy to part of dyskinesia, progressive MS Huntington's gene therapy, the inherited retinal diseases, ALS, treatment resistant depression, Parkinson's psychosis, postpart depression. All these areas where before there had been very little prospect in the very recent, past in the last year or 2, including today, we're seeing a significant change in the risk profile in this area.
Your next question comes from the line of Ronny Gail from Bernstein. Please go ahead.
Good morning and thank you for squeezing me in. A couple of them if you don't mind. The first one is, is I hear you, Michael, but kind of overall reducing risk in, in neurological conditions. But you guys have been pretty positive on your amyloid beta program early on. And I was wondering if in line of the end results here, if you thought about structural changes about how you view trial, how you conduct them, more focus on interim analysis or early futility analysis.
Have you kind of thought about how you kind of mitigate the risk that you take you're wanting pretty significantly risky area. Are you looking into four ways to kind of like ensure that you're not going down the wrong path for too long how do you think of that in light of the aducanumab failure? And then if I can throw one more in, should we read from the Nightstar acquisition, anything about your interest in biosimilar VEGF programs?
Ronny, these are great questions. Which I could spend a lot of time answering. Let me try to give a little bit of a flavor for it. So in terms of how it is that we design and think about trials. Key for us is where we can get early signs with objective types of measurements that we know are connected disease.
So you will see more and more of that. This is what we try to do across the board, but you'll see more and more of that. That means in some instances, specific types of biomarkers, target engagement, the kind of powering of trials in a way where we're looking for big effects and looking for them early, where we can and we know there's a particular standard of care where we can do head to head type of comparisons. It's really leveraging existing data set that are out there across these diseases to define and refine endpoints. These are the things that we're looking to do.
I'll tell you what we're not looking to do is to do large extensive trials where the only thing we're relying on are subjective endpoints in that So you will see less and less of that and more and more about refined patient populations, objective measures that we think will be tied to a meaningful outcome for patients.
Concerning the biosimilars. We do believe in the value creation opportunity offered by the biosimilars, also in the U. S. The savings opportunity are up to SEK 250,000,000,000 in the next 10 years, if we had an effective biosimilars market in the U. S.
And we don't speak about that enough, but I believe what is being discussed in terms of rebates, new rebates policy will address this potential gap. We are very pleased with our portfolio. We are very pleased with our performance. We do not intend to stop here.
Your next question and your last question comes from the line of Terence Flynn from Goldman Sachs. Please go ahead.
Hi, thanks for taking the questions. Maybe just two for Jeff, to follow-up on, Jeff Porter's question, just can you be a little bit clear? Are you obligated to move forward with BAN2401 if Eisai would like to advance this program? Or if you, don't agree, can you opt out and return rights there? And then on biosimilar pricing dynamics in the EU, can you give us sense of what you're seeing right now?
And then maybe beyond Germany for Humira, any early read on some of the other countries? Thank you. So on the first question, Terry, I'm not going to be able to get into a lot of detail. That's a private arrangement between us and our partners. We're, as I said, we're looking at the data across all the programs and we'll certainly be able to give people an update when we have more clarity.
On your second question, with regard to the pricing dynamics, I would just say that the pricing dynamics are more or less in line with what we expected with regard to the IMRALDI launch, having 2 anti TNFs already in the market, we're pretty well tuned to the pricing dynamics was very dramatically country by country. So we understand kind of the dynamics and the the different long term contracts and how different countries bid. And we're very encouraged by what's happening in Germany, where we really kind of have started out strong. So I would say the pricing is more or less in line with expectations and what we've seen historically.
Well, thank you everyone. We're going to end the call now. I'm going to have Michelle make some closing comments.
I would like just to reiterate our commitment to patients, all customers and importantly to our shareholders. I believe Biogen is set to rebound, and I fundamentally believe that we will be back