Biogen Idec's CEO Presents at Cowen & Company 34th Annual Health Care Conference (Transcript)

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 |  About: Biogen Inc. (BIIB)
by: SA Transcripts

Biogen Idec Inc. (NASDAQ:BIIB)

Cowen & Company 34th Annual Health Care Conference Call

March 3, 2014 1:30 p.m. ET

Executives

George Scangos - Chief Executive Officer

Analysts

Eric Schmidt - Cowen and Company

Eric Schmidt - Cowen and Company

Thanks, everyone, for joining us and coming out to our 34th Annual Healthcare Conference. Special thanks to Biogen Idec for again making the long trip across the Charles River. We are delighted to have so many members from management team join in here. I see Al Sandrock, Tony Kingsley, Paul Clancy, Claudine Prowse and of course the Chief Executive Officer, George Scangos is here. He has prepared a 20-25 minute talk. There will be a breakout afterward but hopefully we will also have time for a few of your questions right here in this room after his presentation. George?

George Scangos

Okay. Thanks, Eric. So before I get started, I will be making some forward-looking statements. These involve things that may not happen and so for full view of our risks you should view our filings with the SEC or they are also on our website.

Having said that, I think we have a bright future. The base business, our core business is going very well and that’s basically our MS franchise and our CD 20 franchise. Both of those going well. We have certainly growth driven by anticipated launches later this year. TECFIDERA has launched in the EU but that will roll out in additional countries over the next six to 18 months. Hopefully, ALPROLIX, ELOCTATE PLEGRIDY, all will be approved later this year. Certainly they will drive additional growth for the company. And then we have a very interesting pipeline, where we will have a lot of interesting data in the upcoming months this year, next year, and hopefully some of those data will turn out to be positive and provide the impetus for future growth down the line.

We have a very patient-centric focus. The basic view of our company is we have to do the right thing for patients. The right thing for patients certainly is driven by world-class science that will bring forward drugs that meet patient needs. We are not Pollyanna here. We know we have to develop and sell those drugs and we have to compete effectively on the marketplace. But doing the right thing for patients is almost always the right thing for the company and investors and it’s really how we think about the world.

That served us very well. In the past few years, since 2007, our revenues have grown at an annual rate of 14% and non-GAAP EPS at an annual rate of 22%. It's generated a lot of cash, as many of you know. And this is just a pie chart showing you how we have used that cash over the past few years. 60%, $6 billion out of the $10 billion we have returned to shareholders through stock repurchases. We used $3 billion to acquire the rights of the TYSABRI and $1 billion, give or take, has been used for what we call tuck-in acquisitions, which are small licensing deals or small acquisitions. Basically deals to bring in additional compounds into our pipeline and I have to say, the return on that $1 billion has been fairly dramatic. Many of those products have either reached the market or are waiting for approval now. And so it has been a relatively good use for the capital.

So let's talk a little bit about our Franchise. The global MS market is growing at about 11% annually from a $9 billion market in 2008 to a $15 billion market last year. We have traditionally had about a third of that market. We have maintained that third even in the face of competitor product launches and then last year with the launch of TECFIDERA, we have begun to increase that market share to above a third. The way we look at the market, it's divided into a number of segments. The injectable segment or basically the platform therapies have been on the market for some period of time. They are all injectable. AVONEX competes in this segment of the market. We hope to have PLEGRIDY approved later on this year. PLEGRIDY is also a beta interferon. It is a pegylated version. It is a long lasting version and we hope that it will be approved for a subcu injection every two weeks or every four weeks.

The high efficacy segment of the market in the U.S. now pretty much is only TYSABRI. We have Daclizumab HYP that we hope that we will get a readout for in a Phase III trial later this year. We have it listed here but we don’t really know how the data will shape up, so take that one with a little bit of a grain of salt. But we hope that Daclizumab will be another very good offering for MS patients.

And then in the oral segment of the market we have obviously TECFIDERA, which is already the leading oral therapy which is now approved in the EU, launched in Germany. And so we have great hopes for TECFIDERA moving forward as well. And then we have some projects, some compounds that we believe will be useful for all forms of MS, not just relapsing-remitting MS. FAMPYRA certainly for, help walking, which we market in Europe. And ANTI-LINGO, should it work, could potentially provide a benefit to patients with all forms of multiple sclerosis.

And if we just look at the injectables segment. This is a segment that we expect will decrease in market share overtime as the orals gain further penetration and take more of the market. However, within that market share -- we believe that within that segment of the market share, we believe that we are well positioned to capture increasing share. And we have gone from AVONEX, we now have the AVONEX Pen which doesn’t change the injection frequency. It's still once a week, it's still intramuscular. But the auto-injector has a thinner needle, it's less painful, it's less intimidating. The patients have responded very well to this and I think it's helped AVONEX actually gain some market share in the recent years.

And so this segment of the market we believe will be largely driven by convenience. And PLEGRIDY, which is in the regulatory process and which we hope to have approved later this year, certainly has the potential to make that even more convenient to go from once a week intramuscular to either once every two weeks or once every four weeks subcu injections, also with a very nice auto-injector. So as this general market segment shrinks, we believe we are well positioned to get an increasing share of this segment.

If you look at the high efficacy, TYSABRI is viewed by physicians and patients as having pretty much unrivalled efficacy in multiple sclerosis, and that’s in relapsing-remitting MS. We have done a lot to mitigate the risk of PML and to inform patients with their risk for PML. We continue to work on that and we believe as we are able to refine that and overtime provide physicians and patients with more precise and information, that the future of TYSABRI in relapsing-remitting MS is quite bright. And in addition to that we have finished enrollment in the trial for secondary progressive MS. That’s a two-year trial so it finished enrollment last year, so it will readout next year, 2015. There is no approved drug for secondary progressive MS. It's about 25% or 30% of all MS patients. So this is a big segment of the market. It's a huge patient need. And there is early data to suggest that TYSABRI can work in this. And we have done the trial and hopefully will get a positive readout next year.

Now, in the oral segment of the market, of course we launched TECFIDERA last year. It is the number one prescribed oral medication for MS in the U.S. It's launched in Germany, as you know, it was approved in the EU, it’s launched in Germany. And it takes about six months to 1.5 years to get it approved throughout Europe. 26 different regulatory agencies. There are negotiations with each one of them for reimbursement. We are thick in the middle of that and our plan is to launch it in additional European countries as soon as we can, probably the first of the other countries will be later on this year.

Now if we switch packs a bit. Biogen Idec is more than multiple sclerosis. We have an opportunity now to become a major player in the treatment of hemophilia and to offer patients' products that we believe have some real advantages. So we have waiting for approval, ALPROLIX, which is a long-acting version of Factor IX and ELOCTATE, which is a long-acting version of Factor VIII. Both of these products have longer half-lives than the factors that have been on the market for a long time, and therefore can be infused less frequently. A decrease in the infusion frequency is the number one unmet need in this patient population. This is a genetic disease. Patients are born with it. They have to take these factors lifelong. They have to be infused intravenously. Obviously, that has a significant drag on the quality of life of these patients. We believe that allowing them to do longer periods between infusions offers them a significant value proposition and an improvement in the quality of their lives.

So we are excited about this. These are the first innovations in the treatment of hemophilia in a couple of decades now. And so we are very, I think, excited about the potential to bring these two products to patients how need them. This is a significant market opportunity. The hemophilia is about a $7 billion market. We share this with Sobi. We have rights in the U.S., Japan, Canada, Australia. Sobi has EU and some middle-eastern countries. We hope to have the U.S. approval later on this year. And overtime, I would expect, it just seems intuitive to me that overtime, assuming that these drugs perform well on the market and that there aren't any unanticipated safety issues, that most patients will shift to longer acting therapy. There will be others. It doesn’t mean all are going to shift to ours, of course there are others coming. But it seems to me the market should shift in this direction and we believe we are well positioned for this market in the coming years.

We are in hemophilia treatment to stay. These are our first two products but we have more coming. We have continued to work in the laboratory on additional approaches to extend the half-life even longer. You see on the right here, a very complicated schematic. I am not going to go into that schematic and the details of it, but it represents a molecule that appears in pre-clinical models to have a half-life even longer than ELOCTATE, significantly longer. We are continuing to characterize that molecule and a few others and we would hope to bring what potentially could be the next generation into the clinic, probably next year. So we are in this to stay.

So let's talk about our R&D pipeline for a few minutes and our thoughts about R&D. We are focused in three areas, neurology, immunology, hematology. Within those areas you can see some of the specific diseases that we think are interesting to go after, listed here. So in MS, we are interested in now molecules that will repair [indiscernible] lesions, LINGO being the first and most visible of those. There are others coming behind it. And in progressive forms of the disease, SPMS and primary progressive MS.

Neuropathic pain. Alzheimer's disease is really a focus of our R&D. We as a society have to do something for Alzheimer's disease. We believe we are as well positioned and better positioned than most companies to do so and we will continue to focus on Alzheimer's disease.

A variety of neuromuscular disorders. SMA, you probably all know about. ALS, myotonic dystrophy, other disease. And then movement disorders like Parkinson's and Huntington's. Autoimmune diseases, you can see the list of things that are interesting here. We are including fibrosis in that since fibrosis is often a sequel [ph] to long-lasting inflammation. And we have our first product where we will get a readout later on this year in the fibrosis. And in hemophilia, we are moving beyond hemophilia. We recently a signed a collaboration with a small company Sangamo to develop therapies for sickle cell disease and beta thalassemia.

So for our current assets, we believe or one of our strategies is to really maximize the potential of our current therapies. So TYSABRI, for example, I said has completed a trial in secondary progressive MS. We have begun a trial in stroke. There are potential other indications for TYSABRI as well. We have -- you know some of these diseases that we are tackling, ALS, for example. It's a very complicated disease. It's multi-factorial and it probably has different etiologies in different patients. It's very complicated. And in order to be effective in developing these therapies, we have to understand the biology of the disease.

So we have put together an academic consortium. Six very well academics who are working with each other and with our internal R&D to take apart the biology of ALS. This has been in place for about a year and has made amazing progress so far. Several interesting targets that group into a couple of pathways that seem to be involved in ALS and we are going to take those forward as quickly as we can. And I think that’s a model for us of how we think about going forward. As in a side, ALS science maybe tough. Getting six universities legal departments to agree with our legal department and how to share the upside should there be any, probably was equally tough.

And then we have other approaches that we take into, really kind of have novel mechanisms for therapeutics. So antisense with ISIS. The gene editing technology for Sangamo really starts to get us into gene therapy. The approach we are taking with Sangamo in order to treat beta thalassemia and sickle cell disease is really correcting a gene defect or compensating for a gene defect. If these were to work, and they are early so a big if there, these are potentially a new way to treat this disease that potentially a cure. It's very exciting. It's early, it's risky but the potential is huge.

So we have a lot of things coming this year and next. Hopefully, three launches this year. Late stage readout, Phase III trial for Daclizumab HYP. GAZYVA, that’s follow up to RITUXAN that’s being conducted by Roche. But we have a substantial financial interest in that product. It has great data in CLL as you all know. There will be continuing readouts in various trials for NHL and others coming up. And then TYSABRI in SPMS, we should have readout next year.

And you can see the Phase II projects on which we will have readouts in the upcoming months. In fact CD40 ligand for lupus. Anti-LINGO, which is the remyelinating agent, potential remyelinating agent for MS. BIIB037 is an anti-beta antibody for Alzheimer's disease, we will have a readout this year that will I think tell us whether or not that antibody is depleting flacks. ISIS-SMNRx has gotten a lot of publicity recently. [indiscernible] and Neublastin for neuropathic pain and STX-100 for IPF, idiopathic pulmonary fibrosis. So a lot's on our play. Lot of activity. Lot of upcoming events. And it's a pretty exciting time for the company.

So I think we have done well in focusing on the patient. We continue to do that. And that I think has some interesting implications for us going forward. It's always, we have a variety of customers. They are patients, they are physicians, they are payers. We have to think about all of those in terms of our products. But if we keep doing the right thing for patients at the center, what we think about that keeps us centered and I think that’s almost always the right thing for a company and its investors as well. So we have, I think, a good future in the continued leadership in MS. Hope for expansion into hemophilia and then expansion into other areas as well as we move into the future.

So I think that brings me to the end. I think I am pretty much on the time that Eric requested. So we can stop here and take some questions.

Question-and-Answer Session

Eric Schmidt - Cowen and Company

Thanks, George. May I will start off [Question Inaudible].

George Scangos

We are begin webcast so come on up and use the microphone. The question is about gross to net discounts in TECFIDERA increasing this year.

Unidentified Corporate Participant

So in 2013, we contracted with managed care plans. Kind of at the end of the year. So to the extent we are paying private market, discounts or rebates, those start to come in. There were a bunch of different [indiscernible] to gross to net. Government pricing, relatively small portion of it but it gets discounted overtime. There is also free goods in there, which is in-patient assistance which could be meaningful particularly in a launch phase. So we expected gross to net impact to be favorable, obviously, to the mature products in 2013 but start to catch up in 2014 and look more typically like the other MS products. Given how quickly it's taken up, that’s where we are headed.

Unidentified Participant

[Question Inaudible]

Unidentified Corporate Participant

So AVONEX, products like that would be mid-20s probably, gross to net. So we are short of that. But if we think that overtime it should approach that typical range.

Unidentified Participant

[Question Inaudible]

George Scangos

So the question is, with our new factor VIII construct that I disclosed today, what kind of increase over ELOCTATE would we want to take to make that meaningful. And I would say, we would like to see at least a two-fold increase. It has to be something that’s meaningful. If ELOCTATE takes patients to once every three or four days, you would love to get them to once a week or beyond once a week.

Unidentified Participant

[Question Inaudible]

Unidentified Corporate Participant

Yes, so good question. So list price in Germany...

George Scangos

[indiscernible] repeat the question.

Unidentified Corporate Participant

The question is on TECFIDERA pricing in the EU, having seen the list price for Germany. So the list price for Germany is not indicative for probably two reasons. First, Germany tends to be a higher price market and second, you are in a free pricing environment for the first 12 months while you are under review. Pricing in Europe is not one thing. It's sort of 26 independent events with, I think to sort of bracket [ph] that as you think about it. The platform therapies country by country in Europe tend to cluster in a pretty close range. If you compare the net prices in Europe to what they are in the U.S. for the platform therapies, I would say they are anywhere between 50% and 25% of what U.S. net prices are. So for TECFIDERA, you also have the dynamic in Europe where the second line therapies, TYSABRI is an example. Because they have a more restricted population, are priced higher. They are priced anywhere from maybe 1.5 to little more than 2 times the platform therapies in these typical countries.

Given TECFIDERA's label, right, which is pretty broad, sort a national [ph] poll is going to poll is closer to the platform therapies we think. But that we think it has good efficacy data, so we will be out talking with reimbursement authorities and trying to get the best price we can. So that maybe puts it in some context certainly relative to U.S. and others.

Unidentified Participant

[Question Inaudible]

Unidentified Corporate Participant

Yes. Although it differs, different Spain from Germany. But that’s reasonable. We had run from south of that to a little north of that depending on what part you are going.

Unidentified Participant

[Question Inaudible]

Unidentified Corporate Participant

So in '13, I think we said, we have had the whole market [indiscernible] in terms of switch patients. It was not typical because TECFIDERA itself is taking more than that average [ph]. We have seen that work down overtime although it's worked down sort of slowly there. We believe that it will [indiscernible] we think it's going to be difficult for payers to try to step at it, generic Copaxone in front of other therapeutic modalities. I think they will certainly try to do that but it will be relatively difficult for them to do that. It does add another, sort of weapon in war and continues to put pressure on gross to net overtime. But our expectation, we are planning for having a generic Copaxone in the market.

Unidentified Participant

[Question Inaudible]

Unidentified Corporate Participant

So question about entry into the hemophilia market, how we will position the products and I think you asked a question about the buyer, John [ph]. Yes. Look the positioning to patients and physicians is going to be I think sort of intuitive, which is, you have the potential to do a prophylaxis or even maybe primary prophylaxis with less frequency and get very good protection at the same time. This is, as I think you probably know, a very patient driven market. Patients are very involved in the selection of therapy. So from a education and promotion standpoint, we are going to be out trying to activate patients but also obviously going on both physicians and nurses in the hemophilia treatment centers so that they are ready to say, yes, if you will, when the patients come in.

So we feel like we have a good team in place. We have hired people with industry experience. We have relationships in the market and when we get approval, we will be out calling on both physicians and patients in channel as well.

George Scangos

So there is somewhat of a diversity in how patients are dealing this. Some patients, from what we can tell, view it as an opportunity to expand the interval between dosing, and that’s how we did the trial and that’s what we will be able to talk about. Others view it as an opportunity to not extend that, to keep the dosing interval the same but to maintain higher levels of the factor and all [ph] up to prevent micro-bleeds and overtime get themselves a better outcome. We didn’t do that trial, we have no data to speak to that but that’s the way some patients are looking.

Unidentified Participant

[Question Inaudible]

George Scangos

Yes.

Unidentified Corporate Participant

Yes. So, look on pricing, we had said before, from a payer standpoint, if they think of this as delivering pure convenience, which is to how payers will initially react to this, which is less frequent dosing. Payers typically don’t like to pay for convenience, right. So I think it's reasonable to assume payers are going to be resistant a premium for shorter period [ph]. And we think we have very good clinical data, we will argue the case on that front. There is also an important, sort of mechanical issue, which is how you price it on a unit basis. Because if it acts longer and even if you were to price things comparably on a course of therapy basis, on a unit basis, the prices would be higher. That’s a communication challenge, it's not a fundamental issue but it's a communication challenge that we would have to work to make sure payers -- patients, payers, and channels understand that.

Unidentified Participant

[Question Inaudible]

George Scangos

Yes. The question was that our recent business about [indiscernible] has been focused largely on very early things Sangamo, our latest ISIS collaboration, are really focused on things that are preclinical. And is that going to be continued pattern, I would say we are focused on things that could be very early, things that actually increase our own R&D capabilities to say, Phase II. And that seems to be the sweet spot that are looking at right now. So I wouldn’t want to narrow it down within that range but anything in there is potentially of interest.

Unidentified Participant

[Question Inaudible]

Unidentified Corporate Participant

Sure. The question was to comment on potential dividends in the future. What we have said and what we continue to believe is, look, the whole purpose of what we do with our cash is to maximize the intrinsic value per share of the cash. And sometimes that simple statements, sometimes actually gets lost within companies. Dividends can be an important tool in that. It does come back to, I think for shareholders, dividends kind of give you almost the cost to capital like return on that. As George point out, our primary focus is strategic deployment. Kind of these preclinical Phase 1, Phase 2. And our track record on that has been enormous rates of return for shareholders. So done poorly, obviously you can kind of destroy value in that, but done extremely well, which we are focused on doing, can get outsized returns. I think even with that, we will be left with an answer of how to return capital to shareholders. Our track record over the last ten years has been returning about 60% of excess cash to shareholders in a pretty good way of doing that. We are beginning to talk to the board about broadening out from just share repurchases to broader. I think you have to be -- we do have to be mindful and careful of not kind of moving towards that in a way that puts us a bit on the treadmill and that we kind of bring down the overall rates of return on the total capital. So we will look at it. It could be in the mix. It's probably not in the near term. We still definitely want to get a diversification for our cash flow streams from a product perspective, to if we ever went that way to support one. And we still want to make sure that we are putting it to the highest rate return on investment capital, deployment of capital. Thanks for the question.

George Scangos

Okay. Breakout is in the Tupps [ph] Room round the corner.

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