Biogen Inc (BIIB) 2017 Q2 法說會逐字稿

Good morning.

My name is Dan, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Biogen Second Quarter 2017 Financial Results and Strategic Update.

(Operator Instructions)

I would now like to turn the conference over to Matt Calistri, Vice President of Investor Relations.

You may begin your conference.

Thanks, Dan.

Thank you, and welcome to Biogen's Second Quarter 2017 Earnings and Strategic Update Conference Call.

Before we begin, I encourage everyone to go to the Investors section of biogen.com to find the press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today.

Our GAAP financials are provided in Tables 1 and 2. Table 3 includes a reconciliation of our GAAP to non-GAAP financial results.

We believe non-GAAP financial results better represent the ongoing economics of our business and reflect how we manage the business internally.

We have also posted slides on our website that follow the discussions related to this call.

Given that we have a lot to cover today, we'll only be covering the key financial results for the quarter.

For further detail, I encourage you to refer to the press release and slides.

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'm joined by our Chief Executive Officer, Michel Vounatsos; and Dr. Michael Ehlers, EVP of Research and Development.

We'll also be joined for the Q&A portion of the call by our Chief Medical Officer, Dr. Al Sandrock; Dr. Paul McKenzie, EVP of Pharmaceutical, Operations and Technology; and Dr. Jean-Paul Kress, EVP, President of International and Head of Global Therapeutic Operations.

Now I'll turn the call over to Michel.

Good morning, everyone, and thank you for joining us.

I am very pleased to discuss our Q2 results and recent events and increase our 2017 revenue guidance and, as promised, an update on our strategy for long-term growth.

At Biogen, we are increasingly focused on execution, maximizing the potential of both our commercial business and our pipeline and building new growth drivers for the future.

We had a great first half of the year, and we are excited to build on this momentum for the rest of 2017 and beyond.

For the second quarter of 2017, Biogen generated record revenues of $3.1 billion.

On an apples-to-apples basis, excluding hemophilia, revenues grew an impressive 15% from the same period a year ago, our highest quarterly growth in over 2 years.

Revenues grew 6% when we include hemophilia revenues in the prior period.

GAAP earnings per share were $4.07, and non-GAAP EPS was $5.04.

Earnings this quarter were impacted by the charge related to our recent licensing deal with Bristol-Myers Squibb for their anti-tau assets, now BIIB092.

We believe this is a critically important investment as it gives us 2 new opportunities, one in progressive supranuclear palsy and one in Alzheimer's disease.

This is a great example of the growth-driving deals we are pursuing.

Let me now highlight how we think are the key takeaway for the quarter.

First, financial performance.

We saw continued growth in our MS franchise this quarter.

MS revenues grew 5% year-over-year to $2.3 billion, a record quarter.

We continue to add patients globally, with a 4% increase versus the prior year and 1% increase versus last quarter.

We are pleased with the progress we are making with the launch of SPINRAZA as we generated $203 million in revenue in the second quarter.

We saw significant uptake in the U.S., and we are working with patients, physicians and payers to expand access to as many SMA patients as possible.

And we are now building on this momentum outside the U.S. with recent approvals in Europe, Japan and Canada.

We are preparing our launch efforts in these markets, and over time, we aim to make this therapy widely available across the globe.

Our biosimilars business delivered revenues of $91 million, and we recently received a positive CHMP opinion in Europe for our adalimumab biosimilar, IMRALDI.

Assuming IMRALDI is approved, Biogen will become the first company to offer access to biosimilars of the 3 major anti-TNFs in Europe.

As we will discuss later, we are actively reallocating resources to high priority R&D BD and commercial growth opportunities.

For the second quarter, we recorded $430 million in SG&A expense along with $796 million in R&D expense.

R&D expense included $360 million related to our licensing agreement with BMS.

We also booked a $120 million GAAP charge related to our acquisition of BIIB093 from Remedy Pharmaceuticals.

Next, our nonfinancial achievement during the quarter.

First, we expanded our efforts in acute neurology by acquiring Remedy Pharmaceuticals Phase III-ready asset BIIB093 for large hemispheric infarction, a severe form of stroke with no available therapy.

We completed this deal shortly after entering into our licensing agreement with BMS for the anti-tau antibody, now BIIB092.

We aim to do much more business development as we execute on our priority to bolster our pipeline.

Second, we announced 2 positive update on aducanumab for Alzheimer's disease including an update on enrollment and a protocol change towards Phase III trials, which Mike will cover in more details.

Third, we have made significant progress in building our new senior management team.

Jean-Paul Kress has joined us as EVP, President, International and Head of Global Therapeutic Operations.

Ginger Gregory has joined as our new Head of HR.

Alisha Alaimo will be joining us as Senior VP of U.S. Therapeutic Operation, and we are also making progress in our search for a new CFO.

Now more details on our commercial performance, starting with MS. First, global TECFIDERA revenues were a record $1.1 billion this quarter, a 13% increase versus the prior year with approximately half of that growth driven by volume.

U.S. revenues increased 16% to $875 million versus the prior quarter.

We were pleased to see revenue growth for TEC in the U.S. as strong commercial execution and recovery from the Q1 seasonality led to significant increased volumes.

TECFIDERA also benefited from improved gross to net this quarter.

As a reminder, Q1 was impacted by lower inventory levels in the channel, which remain relatively flat in Q2.

Outside the U.S., TECFIDERA continued on its trends of positive patient growth, driven by recently launched markets, such as Italy, Poland and Japan.

In Europe, the number of TECFIDERA patients grew 17% year-over-year, while in Japan, TECFIDERA has rapidly grown to nearly 8% market share in its first few months on the market.

200,000 people -- 250,000 people living with MS have now been treated with TECFIDERA.

This is a remarkable achievement.

As the market-leading oral, TECFIDERA has a wealth of real-world experience, including almost 400,000 patient years of exposure.

Second, global TYSABRI revenues were stable versus the prior year.

As anticipated, we did see some modest pressure on TYSABRI in the U.S. this quarter following the launch of OCREVUS.

This quarter, TYSABRI was also negatively impacted by approximately $10 million due to a charge to discount and allowances related to prior periods.

In Europe, TYSABRI continued to add patients as it benefited from the updated labor, providing improved clarity on risk classification and patient management.

As a reminder, last quarter, ex U.S. TYSABRI revenues benefited by approximately $45 million related to the AIFA settlement.

Third, we are delivering on our plan to demonstrate leadership in MS through value-based contracting with 4 agreements executed in July.

We are piloting 2 separate approaches: the first, aligning price to patient outcomes; and the second, adjusting price for patients initiating therapy who discontinue.

We believe these pilots will provide valuable information that we can apply to future contracting approaches as we work to tie the pricing of our products to their clinical value and expand formulary access for patients.

Overall, we maintain our global market share in MS. You will hear more from us shortly in our strategic update on our plans and our commitment to maximize the resilience of this critical business.

Moving on to biosimilars.

Revenues grew 37% in the second quarter.

BENEPALI is now available in 20 countries and is the market leader in the U.K., Norway, Sweden and Denmark.

In Germany, BENEPALI's share of the etanercept market now exceeds 30% as we are capturing almost 2/3 of naïve patients starting therapy.

We estimate there are now 50,000 patients on BENEPALI across Europe and growing.

FLIXABI is now available in 8 markets, and we are working hard to drive adoption.

Now on to SPINRAZA.

Global revenues were $203 million, including $195 million in the U.S. and $8 million outside the U.S. U.S. revenues included approximately $30 million related to an inventory build, reflecting the strong demand.

Ex U.S. included the initial launch in the Nordics and named patient sales in the Middle East and Latin America.

We continue to make solid progress in the U.S. in terms of infrastructure and insurance coverage.

With regards to infrastructure in the U.S. As of the middle of July, there were 145 sites that have administered SPINRAZA, a significant increase from 88 sites last quarter.

And we now have a total of 233 sites that have submitted start forms.

We are pleased to communicate that the top 30 SMA centers are now all up and running and able to dose patients.

From a coverage and reimbursement perspective, we have seen strong progress towards expanding access.

Over 80% of commercially insured lives across the U.S. now have a policy in place with roughly 2/3 having broad access.

And for Medicaid, approximately 2/3 of covered lives have a formal policy in place with 60% having broad access.

Very strong demand across patient types with roughly 2/3 of patients treated to date, having Type 2 or Type 3 SMA.

However, we believe that up to 60% of the Type 2 SMA population has already undergone some type of spinal surgery, creating challenges in intrathecal administration.

As leading physicians have transitioned to some of these more challenging cases, we expect slower uptake in Type 2 patients through the balance of the year.

We are working closely with physicians to understand best practices to help these patients, including alternate delivery options.

As the new standard of care for SMA, SPINRAZA is fundamentally changing the treatment paradigm for patients regarding spinal surgery.

The SMA standard of care guidelines are being updated to acknowledge the availability of an intrathecally administered therapy and will reinforce the need to use surgical techniques that can provide access for intrathecal delivery.

As a result of improved coverage, we have seen a decrease in utilization of our free drug program.

In Q2, approximately 20% of units were dispensed as free drugs as compared to 25% in Q1.

This reflects our broader efforts to make SPINRAZA available to as many patients as possible.

We continue to see important advancements in establishing newborn screening guidelines for SMA in the U.S. This is critical in our efforts to treat patients as early as possible.

We are pleased to report that this quarter, SMA was accepted into the review process for the Recommended Uniform Screening Panel.

We intend to support this continued efforts with several pilots already established in Massachusetts, Georgia, Michigan and New York.

Missouri passed a bill earlier this month and became the first state to institute newborn screening for SMA, and we hope that this is just the start.

Outside the U.S., following recent regulatory approvals, we are quickly ramping up launch efforts in Europe, Japan and Canada.

We estimate that approximately 12,000 SMA patients across the geographies.

In Europe, we have now launched in Germany and the Nordics with more countries to come as we secure reimbursement.

During this transitional period, our expanded access program will remain open for infantile patients, where possible.

We now have almost 600 patients across 24 countries, of which over 460 are in Europe.

So far this year, we file in Brazil, Switzerland, Israel and South Korea, in addition to Australia, which was filed late 2016.

We anticipate filing in a number of additional countries for the rest of 2017.

Biogen is implementing a successful launch strategy across multiple geographies, working hard to maximize the number of patients who are able to benefit from SPINRAZA.

While we are pleased with the progress we have made, our hope is that all patients with SMA will have access to this life-changing therapy.

There is still much more work to be done.

In conclusion, it was an exciting quarter with strong execution.

We saw continued leadership and growth in MS, a rapidly progressing launch of SPINRAZA, a growing biosimilar business and further progress in business development.

Last, but not least, Biogen's new leadership team is coming together.

I will now turn the call over to Mike for an update on our recent progress in R&D.

Thank you, Michel, and good morning, everyone.

Let me start by walking through the significant progress we made this quarter, advancing, reshaping and building out our pipeline as we further strengthen our leadership in neuroscience.

Starting with Alzheimer's disease.

Last week, we presented a new post hoc analysis of the Phase Ib PRIME study of aducanumab at the Alzheimer's Association International Conference in London.

This analysis looked at changes in cognitive and functional sub scores of the clinical dementia rating scale, which is the primary end point of our Phase III trials.

The data showed that aducanumab slowed the decline on both the cognitive and functional assessments compared to placebo, and the results of all subgroups studied were consistent with the overall study population.

We also received -- recently submitted a protocol amendment for the Phase III aducanumab clinical studies, ENGAGE and EMERGE, that will titrate the high dose ApoE4 carrier cohort up to 10 milligrams per kilogram.

Previously, the cohort was dosed up to 6 milligrams per kilogram.

This change was made based on the results from the titration arm of the placebo-controlled portion of the Phase Ib PRIME study that showed patients who were treated with aducanumab using a titration regimen had a lower instance of ARIA at 12 months than those patients treated in the higher fixed dose cohorts.

Based on data from PRIME, higher dose titration of ApoE4 carrier may increase the likelihood of demonstrating meaningful clinical efficacy.

Importantly, Phase III enrollment for aducanumab continues to progress well, thanks to operational excellence from our team.

Our strategy was to identify exceptional sites that we believe have high potential to enroll patients and to amplify the strength of our data by raising awareness.

This plan appears to be working very well.

We have sites telling us this is the first time it had patients come in and request a specific Alzheimer's disease trial.

Across ENGAGE and EMERGE, we added over 400 patients in the second quarter.

Enrollment continues to surpass our original expectations.

Further adding to our portfolio and as announced on our Q1 call, we entered into a licensing agreement with Bristol-Myers Squibb for an advanced tau monoclonal antibody asset BIIB092, as Michel alluded to.

The deal closed in the second quarter, and we have made important progress advancing the asset further into the clinic.

In Q2, we dosed the first patient in the Phase II study for progressive supranuclear palsy, a devastating tauopathy neurodegenerative disorder without treatment options, and we are on track to initiate a Phase II study in Alzheimer's disease early next year.

Our collaboration partner, Eisai, is also progressing the Phase II study of BAN2401, a humanized anti-Abeta antibody, which exhibits a strong binding preference for protofibrils.

We expect data from this trial by the end of the year.

Moving on to our efforts in spinal muscular atrophy.

Last month, at the 2017 Annual SMA Conference hosted by CureSMA, we provided a deeper understanding of the efficacy and safety of SPINRAZA across a broad set of SMA populations.

New data presented from the ENDEAR study demonstrated motor function improvements in infants on permanent ventilation with 61% of SPINRAZA patients demonstrating an improvement of one or more motor milestones versus 27% for those in the sham control.

As measured using CHOP INTEND, 78% of SPINRAZA patients demonstrated an improvement of 4 or more points versus 9% of those in the sham control.

New data from the NURTURE study in genetically diagnosed infants with presymptomatic SMA continue to demonstrate that the greatest benefit with SPINRAZA occurs among infants who initiated treatment prior to symptom onset.

At the time of the interim analysis, most infants achieved motor milestone and growth parameter gains generally consistent with normal development, such as head control, independent sitting, standing and walking independently.

These results are dramatically different from the known course of SMA infants with Type 1 SMA.

New data from the CHERISH study in children with later onset SMA demonstrated improvements in motor milestones among patients who receive SPINRAZA compared to a loss among those on sham control.

Specifically, there was a significant and clinically meaningful difference of 4.9 points in change from baseline to 15 months in mean Hammersmith Functional Motor Scale expanded scores for children treated with SPINRAZA.

We also presented additional safety data for SPINRAZA, including data demonstrating no increased risk of adverse events in children with scoliosis.

And overall, the data presented reinforced the significant and clinically meaningful efficacy of SPINRAZA on the achievement of motor milestones and measures of motor function across a broad spectrum of SMA and on survival endpoints in infantile-onset SMA as well as its favorable benefit risk profile.

We are continuing to expand on the clinical development program for SPINRAZA, which has quickly become the largest body of data in SMA ever assembled for any interventional approach.

Biogen has led the way with over twice the number of patients in our trials as compared to any other program with some patients now on SPINRAZA for over 5 years.

We are continuing to gather data through the SHINE study, which we believe will be the longest observational cohort in SMA, and we are planning additional studies as part of our long-term strategy in SMA, which we will discuss momentarily.

We believe this growing body of data solidifies SPINRAZA as the standard of care in SMA and highlights our commitment to SMA patients and families.

Moving on to other advances.

We are committed to enhancing our pipeline through business development, and once again, I am pleased to report substantial progress.

As Michel discussed, we continue to see breakthrough potential in acute neurology, including stroke.

During the quarter, we acquired Remedy Pharmaceuticals' lead asset, a Phase III-ready novel IV formulation of glibencamide, or BIIB093, being developed for large hemispheric infarction.

Large hemispheric infarction is a severe form of ischemic stroke that impacts approximately 15% of the roughly 1.7 million ischemic strokes that occur across the U.S., Europe and Japan each year.

The data supporting the potential of BIIB093 are compelling.

In preclinical studies, BIIB093 blocks SUR1-TRPM4 channels that mediate stroke-related brain swelling.

In Phase II clinical studies, we believe there's strong evidence for positive effects on functional outcomes as measured by the Modified Rankin Scale, mortality and imaging measures of brain swelling.

If confirmed in Phase III, these benefits would represent a significant advancement over the current standard of care, which is largely palliative with no approved pharmacological therapies.

BIIB093 has been granted orphan drug designation and fast-track status in the U.S., which we believe should facilitate rapid development.

We are currently working with regulators across the globe as we design a registrational program, and we plan to initiate a Phase III study early next year.

We believe this transaction is a great example of matching mechanism with disease pathophysiology and the right patient population to address a significant unmet need.

The BIIB093 transaction complements Biogen's broader efforts to build a portfolio of best-in-class treatments for stroke and acute neurology.

We're also currently conducting a Phase IIb trial with natalizumab with the aim of improving functional outcomes by limiting brain inflammation in the post-stroke period.

We expect data early next year.

If successful, we anticipate that natalizumab and BIIB093 will provide new approaches to treating complementary populations of stroke patients.

Natalizumab is targeting acute ischemic stroke patients with mild to moderate severity with a therapeutic time window of up to 24 hours after stroke onset, whereas BIIB093 is being evaluated for large hemispheric infarction up to 9 to 10 hours after stroke onset.

Moving on to other areas in our pipeline.

We continue to see exciting potential for BIIB074 in neuropathic pain based on a differentiated mechanism of action and compelling proof-of-concept data.

We believe that there is substantial medical and social need for new, effective, none-opioid pain therapeutics.

Our Phase IIb study in painful lumbosacral radiculopathy is enrolling with data expected in 2018.

And next year, we anticipate initiating a Phase III program with trigeminal neuralgia, a devastating disease with limited treatment options.

Our early-stage pipeline includes novel approaches to tackling some of the most daunting, important challenges in neuroscience beyond Alzheimer's disease.

For example, in collaboration with Ionis Pharmaceuticals, we're advancing BIIB067, an antisense oligonucleotide therapy targeting a genetic form of ALS associated with mutations in the superoxide dismutase-1, or SOD1, gene.

This program leverages our unique expertise in intrathecal antisense oligonucleotides as a new transformative modality and highlights our approach of pursuing a genetically validated target in a disease with few treatment options today.

We're encouraged by the profile of BIIB054, our anti-alpha-synuclein antibody currently in Phase I targeting the core pathology of Parkinson's disease with the goal of slowing disease progression, and we look forward to advancing a set of novel drug candidates into the clinic.

Across our pipeline, we now have 2 assets in Phase III, 10 in Phase II and 3 in Phase I, representing a set of exciting opportunities.

We continue to make good progress advancing this portfolio, but we recognize that accelerating our long-term growth will require further enhancement to our pipeline.

I will now pass the call back to Michel.

Thank you, Mike.

Now guidance.

We are raising our full year 2017 revenue guidance to a range of $11.5 billion to $11.8 billion.

We assume that SPINRAZA continues on a strong trajectory in terms of patient uptake in the U.S. However, we expect revenue growth will slow as many patients move on from loading dose to maintenance therapy.

Outside the U.S., we expect modest SPINRAZA revenues, particularly from Germany and Japan.

Our assumptions for MS for the balance of the year remain largely unchanged.

We anticipate GAAP and non-GAAP R&D expense between 18% and 19% of sales.

This is an increase from prior guidance, reflecting the recent in-licensing of BIIB092 from BMS.

This guidance does not include any impact from potential acquisitions or large later-stage business development transactions.

These are hard to predict, but obviously remain a priority.

GAAP and non-GAAP SG&A expense is expected to be approximately 15% to 16% of revenue.

We anticipate GAAP EPS results between $17.05 and $17.65 and non-GAAP EPS to be between $20.80 and $21.40.

We believe 2017 is turning out to be a very strong and successful year for Biogen.

Now I would like to turn to our strategic update and discuss how we aim to build on this impressive success going forward.

Our mission is clear.

We aim to be the leader in neuroscience by developing transformational therapies to address what we believe are becoming the world's most significant unmet medical needs.

In order to achieve this mission, we plan to maximize our near-term performance while investing for the future across 4 core growth areas: one, MS and neuroimmunology; two, Alzheimer's disease and dementias; three, Parkinson's disease and related movement disorders; and four, neuromuscular disease, including SMA and ALS.

Further, we see opportunities to invest in emerging growth areas, such as pain, ophthalmology, neuropsychiatry and acute neurology.

Through the end of the decade, we expect cash flows to significantly grow, driven by continued performance of our commercial assets and the anticipated expiration of the contingent payments related to TECFIDERA in the first half of 2019.

This cash flow will enable us to invest in and build an industry-leading neuroscience pipeline that we believe will transform Biogen into the fastest-growing large-cap biotech company.

This represents a shift in approach from emphasizing share repurchases to prioritizing business development and investing for growth, always with a priority towards maximizing shareholder value.

We see an inflection point for Biogen in the early 2020s with multiple high assets, potentially reading out and launching.

We are all looking to aducanumab as a potentially transformative opportunity for Biogen.

We do remain optimistic about what this therapy and our broader Alzheimer's franchise could represent for us as a company and, mostly, for all the patients we serve.

Importantly, we aim to demonstrate that we can advance a broader world-class neuroscience pipeline beyond just Alzheimer's disease.

In order to deliver positive results in the near term while investing in the next stage of growth for Biogen, we will focus on the following 5 strategic priorities: one, maximizing the resilience of our MS core business to drive strong cash flow generation; two, accelerating our efforts in spinal muscular atrophy to shift towards significant new growth opportunities; three, developing and expanding our neuroscience portfolio to create future growth engines of Biogen, Mike's will -- Mike will discuss; four, reprioritizing our capital allocation efforts to drive investments for future growth; and five, creating a leaner and simpler operating model to streamline our operation as we aim to redirect up to $400 million towards high value creation, R&D and commercial opportunities.

Let me start with our first strategic priority, MS. Biogen is the clear leader with over 340,000 patients benefiting from our therapies today.

We are focused on areas where we can improve as we prepare for the marketplace to become increasingly competitive with new entrants and generic products.

We are committed to maximizing the resilience of our MS core by evolving our operating model and continuing to invest in MS-focused R&D.

Specifically, we have transitioned to a portfolio-centric, customer-first model to better meet the needs of patients, health care providers, payers and all the stakeholders in the value chain.

We also aim to further differentiate our leadership in MS through services, solutions and business model innovations.

We are committed to improving physician engagement and providing deeper patient support to help patients manage their disease, and we are proud of Biogen's leadership position in fostering value-based contracting.

We recognize that price and access to treatments are key consideration for patients, providers, payers and policymakers.

We aim to improve quality of care and expand access to our products by shifting from transactional to value-based contracting.

As the MS leader -- as the MS market leader, we are well positioned to benefit the most from progress in diagnosing and managing the disease, including early identification of patients requiring high efficacy.

We are working to advance the overall treatment paradigm by promoting the use of MRI, cognitive measures and innovative technology to better diagnose and monitor the disease.

For example, we are collaborating with Siemens, to develop new MRI tools and hope to expand utilization of the MS Performance Test, an iPad-based app we developed in collaboration with Cleveland clinic.

We remain committed to investing in R&D for MS to address key unmet medical needs, including developing opicinumab as a remyelinating therapy, advancing new DMTs with superior profiles, working to address progressive form of MS and researching new approaches for preventing, diagnosing and managing PML.

In summary, we are optimizing our commercial operating model, investing in new customer solution, demonstrating leadership through innovative contracting approaches and continuing to drive new scientific advancements.

We believe this strategy will support a healthy, resilient MS business for Biogen.

Next, let's speak about our second strategic priority.

SPINRAZA is already off to a very promising start, making a real difference to the lives of patients.

It continues to exceed expectation in the U.S. and gains approvals in large geographies, such as Europe, Japan and Canada.

We believe we can accelerate our success to drive near-term growth and position Biogen for long-term leadership in SMA by: increasing access to SPINRAZA globally with particular opportunities in Asia Pacific and Latin America; strengthening SPINRAZA's profile with real-world data in additional subpopulation, including teens and adults; accelerating diagnosis and newborn screening through disease awareness and education; reducing treatment burden, such as optimizing the dose; and exploring additional treatment option, such as gene therapy and symptomatic therapies.

Overall, we believe SPINRAZA will become one of our largest commercial assets, shifting the center of gravity for Biogen beyond MS to generate new growth.

Mike will now discuss our R&D strategy for creating new growth engine by developing and expanding our neuroscience portfolio, and I will be back to close on capital and resource allocation.

Thanks, Michel.

Our strategy is rooted in the fact that the unmet need in neuroscience is massive with an aging population leading to a significant increase in the number of patients globally that are expected to suffer from nervous system disorders, many of which currently have limited or no treatment options.

Biogen has a long history in neurology and has built up substantial core competencies in the area.

It is our belief that no other area of medicine holds as much promise with as much need as neuroscience.

The opportunity space is vast, and the time is right.

With an ongoing revolution in basic neurobiology, human genetics, biomarkers, patient stratification and neural imaging and increasing receptivity to new clinical endpoints and regulatory paths, we believe that all signs point to neuroscience as the next oncology.

Yet, for most companies, it is either not an area of focus or represents an opportunistic play.

Our view is that success in neuroscience requires intense focus and that opportunistic approaches will not maximize value.

There's a need for a leader in neuroscience.

Our goal is to be that leader.

To that end, and recognizing that it's a therapeutic area in the field of biomedicine, neuroscience is large with many intersecting disciplines, our strategy is to concentrate on the 4 core growth areas Michel mentioned: MS and neuroimmunology; Alzheimer's disease and dementias; Parkinson's disease and related movement disorders; and neuromuscular disease, including SMA and ALS.

We believe we can accomplish leadership by acting on the following strategic initiatives: first, building a translational machine in neuroscience to increase the probability of success for transitioning from the lab all the way to the market; second, investing in assets and capabilities in our prioritized growth areas; third, substantially augmenting our pipeline to emphasize both innovation and risk balance.

To the first point, we believe that our translational capabilities are increasingly changing the probabilities of success across neuroscience.

We are gaining a better understanding of genetics and mechanisms of action.

Disease models are improving.

We're developing insights from longitudinal studies of population, and we continue to invest heavily in biomarkers for disease pathology and progression.

For example, we're mining our clinical data in experimental electric physiological endpoints in ALS, yielding clinical measures with the potential to enable trials that are half the size, twice the speed and 1/3 of the cost.

In Parkinson's disease, our advanced imaging biomarker investments are allowing patient selection and detection of disease progression that has not previously been possible.

Fueling this translational machine, we've identified genetic modifiers and causal pathways that are providing proprietary insight to produce our next generation of drug candidates.

Meanwhile, we are already witnessing advances in technology with new modalities that can be unlocked such as antisense oligonucleotides, new delivery routes, such as intrathecal, and advanced imaging.

Furthermore, we have established some of the best scientific-based relationships with regulators and are seeing accelerated pathways to approval and openness to new endpoints.

For our second strategic initiative, to build the industry's leading neuroscience portfolio, we are committed to reinvesting for growth.

Our approach to develop and expand our pipeline builds on deep scientific and clinical knowledge.

We will invest in the 4 core growth areas that Michel and I previously described.

Within these areas, we see an opportunity to leverage Biogen's capabilities and rebalance pipeline risk by emphasizing rare, neurological and neuromuscular disease, including genetics subtypes of more common diseases, such as Parkinson's disease, ALS and tauopathies.

We also see further opportunity in the emerging growth areas Michel mentioned, pain, ophthalmology, neuropsychiatry and acute neurology, where we are able to leverage commonalities and synergies in biological mechanism, disease pathophysiology and clinical populations.

We will use multiple treatment platforms in an agnostic manner, small molecules, biologics and antisense oligonucleotides, intrathecal administration and gene therapy, taking advantage whenever possible of our unique capabilities, such as in biologics and intrathecal antisense oligonucleotides.

To the third point, we recognize that we have a highly innovative pipeline, and as a consequence, it may seem risky and heavily weighted towards just a few indications.

Our strategy includes pursuing areas where real innovation is required and where success means pioneering new approaches and opening new areas of medicine, much like we have done with SPINRAZA in SMA.

At the same time, our strategy includes taking a thoughtful and conscious approach to rebalancing risk in our portfolio.

This means: one, continuing our scientific leadership across our core franchises of MS and SMA.

This includes development of DMTs with superior profiles as well as pursuing next-generation therapeutics in remyelination, muscle enhancement and gene therapy that leverages our substantial strengths; two, increasing our emphasis on rare and orphan diseases and, particularly, rare neurological neuromuscular disease where the probability of success is higher and speed to approval is faster.

Our pursuit of BIIB092, the anti-tau monoclonal antibody in progressive supranuclear palsy provides an initial example of this approach; three, broadening our lens of opportunity in the pipeline across neuroscience, including the emerging growth areas of pain, ophthalmology, neuropsychiatry and acute neurology; four, pursuing patient-centered franchises.

Here, what I mean is developing a portfolio that addresses multiple features of a given disease.

So in addition to disease-modifying therapies, we will search for additional symptomatic solutions and therapeutic improvements in our core areas; and five, acquiring late-stage assets where possible.

Although our emphasis and asymmetric capability to extract value rest in identifying early-stage clinical assets, we intend to stay vigilant and proactive in evaluating later-stage opportunities.

As we develop and expand the Biogen portfolio, we are also working to increase overall productivity at every stage and we will implement a more robust external pipeline strategy that includes asset acquisitions, development partnerships for resource flexibility and early innovation partnerships.

It is important to note that we believe the future growth we can generate from our neuroscience portfolio is not solely contingent on aducanumab, but rather complemented by it.

As we rebalance the portfolio, we plan to expand and enhance our opportunity set to diversify beyond aducanumab as the predominant value driver for the future of Biogen.

While we continue to see tremendous opportunity for Alzheimer's disease franchise, we believe we can achieve our aspiration of becoming the fastest-growing large-cap biotech even without aducanumab.

In order to create new growth drivers for Biogen, we aim to bring in and advance several assets through development over the next few years.

Our aspiration is to grow our late-stage pipeline from 2 assets in Phase III today to substantially more in Phase III or filing-ready by the end of 2021.

In summary, we remain focused on neuroscience, but widening our lens of potential opportunities.

Our strategy takes a multipronged approach to both expand and derisk our pipeline, including an increased emphasis on business development and diversification across both disease area and therapeutic approach.

And to achieve all of this, we are working to enhance our internal R&D capabilities to increase both productivity and the probability of success.

With a clear strategy in place, we are laser-focused on execution and delivering the portfolio.

I'll now turn the call back over to Michel.

Thank you, Mike.

Turning to capital allocation.

As we move forward, our new priority for capital deployment is to invest in building our pipeline across our core growth areas and emerging growth areas.

We will explore deals of all sizes and will remain disciplined in our approach.

We look to deploy capital to generate returns meaningfully above our cost of capital.

We view investment in growth as our top priority, but we also recognize the value of opportunistically returning excess capital to shareholders through share repurchases.

Our final strategic priority is to implement a plan for a lean and simple operating model, which we believe can unlock resources that can be reallocated to help fund our prioritized investment for growth.

We expect that by 2019, up to $400 million annually will be available to redirect towards prioritized R&D and commercial value-creation opportunities.

Before I conclude, let me discuss our biosimilars business.

We are excited about the potential value of both our commercial assets in Europe and our option to increase our investment in our JV, Samsung Bioepis.

Biosimilars are an important contributor to our growth while not being at the core of our neuroscience focus.

Our plan is to use any positive cash flow from our commercial operation in the JV to reinvest in our core growth strategy.

Now let me summarize our strategy to deliver in the short term while investing for medium- and long-term value creation.

We are focused and committed to maximizing the resilience of our MS core business.

We expect SMA to generate significant growth, accelerated by geographic diversification.

We believe our core business is capable of generating significantly increased cash flow to invest for growth.

We aim to expand and develop our neuroscience portfolio across our core growth areas and emerging growth areas.

We believe we can build our pipeline while at the same time, rebalancing the risk profile of our portfolio.

Our capital allocation is focused on enhancing our pipeline for future growth, and we aim to free up to $400 million a year in resources that we can reinvest.

Lastly, there is an overarching theme that I believe will be key to implementing our strategy.

We are building a new management team with diverse global expertise and execution mindset, and our actions will continue to speak for themselves.

So far this year, we continue to grow our MS business.

We delivered a strong start to our SPINRAZA launch.

We added 2 high-value assets to our pipeline.

We passed 50% enrollment for aducanumab.

We executed 4 value-based MS contracts here in the U.S., and we increased our biosimilars revenue in Europe.

We intend to continue this momentum.

In closing, I would like to thank our employees around the world, who are dedicated to making a positive impact on patients' lives and all of the physicians, caregivers and participants in our clinical development programs, the past and future achievements could not be realized without their passion and commitment.

I am excited about our path forward on this promising journey with our team and all of you.

There is a need for a leader in neuroscience.

Our goal is to be that leader.

With that, we'll open the call for questions.

(Operator Instructions) Your first question comes from the line of Geoff Meacham, Barclays.

So you touched on this, but Michel and Michael, I wanted to ask you about the clinical risk here.

When you look at the biz dev, I think most investors acknowledge the high impact niche or the pipeline, but the risk profile and probability of success in Alzheimer's and stroke, in particular, I think is the main uncertainty.

So when you think about external biz dev, how much of an emphasis is there on clinical risk over things like diversification and impact?

And when you look to say the orphan space do you think, more broadly, SPINRAZA will provide a template for a bigger franchise in the rare disease space?

So before I give the floor to Mike, this is Michel.

So we want to have a strategy that is a bit more hedged.

There are different combination of factors in the different verticals that you heard in neuroscience that were communicated by Mike.

Including clinical development risks, time line, P&L risk, capital allocation, regulatory or payer.

But now coming back precisely to your question, Mike will give you more details.

Yes.

Geoff, I think this a great question, and the nature of it sort of highlights exactly what we're trying to do.

We are looking very closely at clinical risk.

We're looking to diversify that a bit.

We think that SPINRAZA does provide an excellent template of what we can do in rare and orphan disease.

We're -- when we look at business development, we're going to look very closely at this area in rare and orphan.

We also want to make some of this risk a little bit less codependent, which is areas that may not -- where the risk isn't the same across different clinical populations.

So we're looking at that.

And then I mentioned a little bit about trying to pursue patient-centered franchises, which is kind of addressing things across patient areas where we've got known expertise.

Whether that's symptomatics in Alzheimer's disease, whether it's muscle enhancement in SMA, those are the kind of things that we're going to look due to diversify and mitigate clinical risks in the portfolio.

And your next question comes from the line of Eric Schmidt with Cowen and Company.

Congrats on a great start of the year.

I was hoping Michel could just talk a little bit more about capital allocation.

It sounds like the shift from share repurchases to one of biz dev priorities is emphasizing maybe more growth over value.

Can you talk about why you perhaps no longer view your stock as, as good an investment?

Or also whether the dividend, any discussion of the dividend is off the table for the foreseeable future?

Thanks for the good question, Eric.

So as alluded, the third strategic priority is to develop and expand our neuroscience portfolio.

We believe that this is a future growth engines for the company.

But we will, obviously do that with the objective to maximize shareholder returns.

We will absolutely deploy this capital when the internal rate of return will exceed our weighted average cost of capital, and we will look all the time at R&D commercial acquisitions as well as returning capital to shareholders, okay?

So we don't exclude returning capital to shareholders.

We will evaluate that while we see the opportunities.

Your next question comes from the line of Umer Raffat with Evercore ISI.

Michel, so on the call today, you mentioned a possible potential inflection point in the early 2020s, and you also talked about resilience in the MS space business and the growth in SPINRAZA.

So my question is this, do you think you can grow top line through that possible inflection in early 2020s, even if you excluded the contribution from biosimilars?

So we -- the facts and the way we did outline the strategy hopefully speaks for itself in terms of ability for Biogen to implement well on the opportunities we have to continue to drive MS and to accelerate the efforts in SMA.

And we believe there are significant opportunities as explained.

And if we continue implementing while MS is a growing market, there are half of the patients being treated than the actual prevalence in the U.S. So we decided not to give long-term forward guidance on this measure that you asked, but we are confident in our ability to continue to implement well and deliver on the expected performance.

And yes, it is true that at the same time, there is an articulation whereby we have the readouts of very important studies.

And -- but we will not wait for that.

As we said all along, we will continue to develop and expand our portfolio, and therefore, there will be some capital allocation prioritization efforts, including potentially some BD.

So this is what we are working towards.

Your next question comes from the line of Geoff Porges with Leerink Partners.

Mike, a lot of people have been asking about an interim look on the aducanumab trials, you amended the protocol as you described for the ApoE4 carriers.

Could you talk about the advisability and likelihood of an interim look?

And whether that's something that would be disclosed to you or to us at the time?

Yes.

Geoff, thanks for the question and interest.

We just don't comment about interim analyses.

So I really have no more to say on that one.

Your next question comes from the line of Ying Huang with Bank of America Merrill Lynch.

Congrats on the quarter.

Michel, you mentioned that the global MS patients increased 4% versus last year.

So do you think that's a long-term market trend?

And also, what do you think OCREVUS would do?

Because if I do my math, it seems that the drop in TYSABRI revenue in the U.S. this quarter, is way less than what we saw from the increase in OCREVUS launch.

So does that mean actually, OCREVUS would, at least in the near term, expand the MS market?

I was wondering if you can talk about that.

Yes.

This is what I anticipated.

Your competitor is your best friend, mostly when you get 24% royalties in the largest market.

So we have seen in the U.S., a contraction in 2016 of the market.

And we assume that the market will resume back to low single digits growth in the U.S. and high single-digit growth in Europe geographies.

So I anticipate that with the PPMS, label and all the patients that were on the sidelines, there is logically an opportunity to see the market regain some momentum.

And concerning TYSABRI, it's 10 years of cross-marketing experience with a very well documented benefit-risk proposition for the providers and for the patients that had the time to experience the efficacy of this product.

I was in USC last week, and I was reminded by all the physicians on the perceived unsurpassed efficacy on this product.

So it speaks for itself, and I believe that TYSABRI will continue to do well, but we have seen some erosion and so be it, for [high-tech SCV] that was switched to OCREVUS.

But let's keep in mind that when they switch from TYSABRI to OCREVUS, it's not an easy switch.

What I hear, and as anticipated, is that some of the patients rebound in the disease symptomatologies, and they do communicate that to the provider.

So this is clearly an element that we see.

So I hope I did answer with a few measures your -- of dynamic, your question.

Your next question comes from the line of Ronny Gal with Bernstein.

I would like to touch on SPINRAZA for a second.

Now that you kind of know a little bit more about the market dynamics in the United States, patients with spinal fusion, and so forth.

Can you just give us a feel for the applicable market size for SPINRAZA as you see it today?

And as long as we're following, that you have not really mentioning time lines for bringing your own gene therapy to the marketplace, can you just -- can you describe that time line and how you would compete with potential gene therapy between the current state and the state -- and when you have your own program coming to market?

Yes.

So I will take the first part, and then I will let Mike on the gene therapy comment.

So while I travel in the different geographies, and I got to meet scientific leaders, and I talk to advocacy groups, it appears that the epidemiology and the prevalence might be slightly higher than what we anticipated.

This is what I hear from different geographies.

So we are very pleased with the launch progress, and we see infrastructure and patient access improving.

The patients' pull and demand is certainly a very good start for this momentum.

And importantly, we are making some good progress with the later onset.

And keep in mind, that the later onset represents 80.

(technical difficulty)

So we are now with regulatory approval beyond the U.S., unlocking new patient pools broadly and the testimony from the patient is critical, and this is a community that basically communicates extremely well.

Patients and family are very well-informed, motivated in their demand treatment.

So what we said in the call is that we believe that SPINRAZA will become one of our most important commercial assets.

So Ronny, I'll try to answer the question about gene therapy.

So first, we're very excited about our Penn collaboration.

Obviously, we stay closely aware of clinical results as they're being presented in the field by AveXis, as an example.

We think we're making good progress.

We believe that we will be able to get to the clinic next year.

We see a path forward.

We're making a considerable investment in our development capabilities, our regulatory strategy, all the analytics and manufacturing technologies that go around this.

And we're quite committed to solutions, including gene therapy solutions for all SMA patients.

So just an additional comment, but I would like to give the floor first to Paul McKenzie, our Head of Manufacturing, who will say a few words.

Ronny, thanks for the question.

Great to hear your voice.

Looking forward to the challenges of gene therapy.

As we know, across the industry, many companies are wrestling, like us, with gene therapy, its scalability, its analytical challenges and our regulatory path forward.

We've been investing specifically in growing our development engine in collaboration with our early partners like Penn, where we're co-locating resources between the 2 companies, learning from each other actively.

We believe that we can build a development engine that will drive success across our portfolio of gene therapy entities.

And as we have announced at the end of last year, we went into a strategic agreement with Brammer Bio for manufacturing capabilities so we could codevelop and leverage a manufacturing platform across our entire portfolio.

So we're excited about our possibilities in gene therapy.

Thank you, Paul.

Al Sandrock would like to make a comment.

Ronny, on the question about prevalence, the most common type of SMA based on incidence is the Type 1. And we know we affect survival in Type 1 patients.

So the prevalence has to go up overall for SMA, if that's true.

Your next question comes from the line of Robyn Karnauskas with Citigroup.

Congrats on a great quarter.

So just a follow-up.

Al, with that comment, so just the point about the percent of people who can't get treated, is that a new data point?

Did you know that a certain percentage of patients could not get the intrathecal injection?

And did you say that it's about only 40% that might be eligible?

So is the number of the original numbers of prevalence that you put out there, would that go down because a lot of those patients can't be treated?

And just a quick question on the EAP patients.

Are those patients that would be paying patients going forward?

Or have they gotten their drug already?

Would they be getting drug in the future?

Yes.

The plan on the EAP is to eventually -- when -- it was meant to bridge between getting the results, the positive results and getting approval and reimbursement in those countries.

So it's meant to be that bridge and eventually, we anticipate the EAP patients will be on drug in the commercial setting.

And in terms of people who can't get the drug, I mean, the types of people who can't get the drug were people who had spinal surgery.

For example, spinal fusions are having trouble medically to get the drug because -- and a lot of those are Type 2 patients, childhood onset patients.

And so we're working through how to -- we're working with orthopedic and neurosurgeons on trying to figure out how to get drug to those patients who deserve to be treated because they're childhood onset.

And we have data that shows that childhood-onset SMA responds well to SPINRAZA.

The -- and in terms of others who can't get it, I think you might be referring to those who get reimbursed.

And we're working through that.

I mean, we don't have a lot of data in adult-onset patients.

So consequently, there are some questions from payers.

But we're going to be addressing those questions.

And remember, we have a broad label in the U.S. Many of those patients are getting treated, and we'll see if we can see efficacy in those patients as they get treated per their U.S. label.

So this is Michel.

The uptake so far was strong, and we just want to send a word of caution here because yes, effectively, 80% of 60% of the Type 2 population basically had or has spinal surgery, and eventually, just let's put ourselves in the shoes of Type 2 patients, adult patients who had the fusion surgery and is aware now about the availability of a product like SPINRAZA and how motivated and also frustrated.

And therefore, together with the medical community, they try to find solutions.

Let me give you an example of one center, close to where we stand here, the Boston Children Hospitals.

They have a strategic plan in place.

They have an internal team that is well assigned to SMA.

They have processes in place to manage through all the logistics.

They are partnering with the payers in order to secure access and reimbursement.

And they are working now on the solutions, so that they can appropriately dose the more complicated patients.

It starts with the right leadership, the right commitment and providers here are our allies in order to find solutions for those patients.

But again, we just want to say, we won't be able to penetrate as strong as one would wish in this population because of this challenge.

Your next question comes from the line of Matthew Harrison with Morgan Stanley.

So Michel, you clearly outlined a lot of flexibility in what you could do from both the pipeline and the revenue side.

And I think you struck a tone of confidence here on the business, but you also decided not to give any kind of long-term metrics.

Can you just comment on why you didn't give any long-term metrics at this point?

And if there is a time or what needs to change for you to feel comfortable to give some long-term metrics?

So listen, I think that the process that, together with the executive team, who worked on during the past 6 months, has been a very rich and fascinating journey to try to define what will be the next step for Biogen.

I am in charge since 6 months, and I think that already, what we communicated to you is pretty solid, and to give you an indication on how we see Biogen evolve, and we decided that for the time being, this is good.

Obviously, we have our plans.

We have our commitments, and we've got to execute on those.

But here, you have a clear view on the strategy, meaning, what we consciously decide to do and not to do.

And this is what we communicated today.

Your next question comes from the line of Alethia Young with Crédit Suisse.

Congrats on starting off the biotech tape with a good quarter.

I guess, just going to SMA again, kind of in the point of the centers for people who are early adopters, do you kind of see people going back to use the drug?

And also like what's been the general feedback as far as kind of educating and getting people comfortable with intrathecal injections?

So what we see is a learning curve.

Remember, those centers did not perform intrathecally -- intrathecal injections, and mostly, injections and very often, for infants.

And what we see is capability being built around this pool of patients, pressed by the patients, tremendously pressed by the patients and the advocacy group.

And what we see is a learning curve and when they dedicate personnel infrastructure, we expect depth to increase over time in those key centers.

Remember at the outset, what we always said, with a lot of cautions since day 1, and we continue to be very cautious about the ramp-up is that there are approximately 30 key SMA centers and 150 neuromuscular centers.

And you see that, where we stand today, with 145 centers dosing the product, we've made substantial progress.

And now it's a matter of having those centers performing more and more so that the patients can benefit.

Pediatric neurologists, generally, I mean, they're comfortable putting a needle in the intrathecal space, but usually they withdraw fluid for diagnostic purposes.

So I think early on, many, many centers were asking anesthesiologists and interventional radiologists, who are more used to putting things into the intrathecal space to help, but I suspect that as time goes on, as Michel was saying with the learning curve, that people will start to get comfortable injecting because the hard -- usually, the hard part is to find the intrathecal space with a needle, once you're there drawing versus adding fluid, there's not that much of a technical difference.

Your next question comes from the line of Terence Flynn with Goldman Sachs.

Michel, when you referred to a leaner and simpler operating model, I'm just wondering if that just assumes a redirection of some SG&A spend to R&D?

Or does that also contemplate any potential SG&A cuts that could impact your margins positively?

Listen, the world and technology are evolving very fast.

And the question, is pharma companies evolving at the same pace or faster pace?

And how is Biogen in that space?

Are we -- where do we stand versus pharma benchmarks and beyond pharma benchmarks?

And yes, we have done a lot of cost measure in the past, but when you peel the onion and you see the reality of the key processes, the ability for proximity to the key geographies and patients, the key processes on the manufacturing, R&D, using channels and benefiting from technology or procurement, there are plenty of opportunities to be leaner and more simple and to be the biotech that we stand for, the one that everybody wants to copy.

And this is why looking at the opportunity here across all divisions and functions, we stated this opportunity of $400 million run rate as per 2019, that we are going in order to be logical with our strategy that we are going to reinvest in value creation opportunities that would benefit the shareholders.

But I would like Paul to say a few words as Head of Manufacturing how he sees the lean and simple.

Great.

Thanks, Michel.

Thanks, Terence, for the question.

To Michel's point, we really believe that if we can take --- stand back and -- we have a great track record of developing and delivering high quality products to the market.

But when we look at our fundamental processes, there's always opportunity to improve.

There's areas like end-to-end planning in terms of how much time we take from start, raw material to patient.

How can we improve our overall cycle times?

How can we reduce variability to be successful?

Reliability is a key focus of our manufacturing teams.

How can we ensure that we're reliable day in and day out, and really manage to make reliability a key strategic deliverable moving forward?

We believe in resource allocation and the use of resources to drive higher use of technology, whether it's algorithmic planning for inventory or whether it's process control.

And the last one I want to highlight is our -- really, our zest to deliver industry platforms for all of our technology areas.

I just want to highlight our next-generation manufacturing platform that creates an ecosystem from our interface to R&D, out to our day-to-day distribution, but next-generation manufacturing, we hope and we believe we can deliver consistently titers in monoclonal antibody space, be above 10 grams per liter, which we will be the first in the industry, and we believe, to deliver that level of titer.

Thank you, Paul.

So basically, it's all about the fitness for the organization and how can we enhance the level of speed in decision-making, proximity, agility.

In the P&L, you can expect to see neutral impact on the contribution and bottom line, but the potential shift from SG&A to R&D.

And last but not least, I would like to say that based on this fitness, we want to stimulate growth momentum that the cost discipline at Biogen actually will enhance because we want to be very, very rigorous on how the money is being spent.

It's not about focusing the efforts on headcount reduction.

It's all about fitness and processes.

Your next question comes from the line of Michael Yee with Jefferies.

A question for Al or Michael.

You talked about the timing for gene therapy next year for SMA.

Can you talk a little bit more about some of your confidence in terms of differentiating?

Is that going right into the Type 2 patients?

Does it improve [capsage] ? Does it improve manufacturing given the COGS for these types of patients?

Maybe talk a little bit about the challenges, and what you see differentiation of capabilities.

And Michael, this is Mike.

I'll kind of start.

I mean, look, at one level, we haven't really disclosed our overall strategy in this area, so I can't go into some of this.

But as I mentioned, and Paul elaborated on, we have put a considerable investment into our development capabilities, our analytical and manufacturing capabilities, and we do see this across therapy space as a being critical point of differentiation.

I mentioned that we're committed to solutions for all SMA patients, and I think that's also going to be an important component of potential differentiation in our development strategy.

And I would also highlight that because SPINRAZA has become the standard of care and is approved quite broadly in SMA, we need to think very carefully about how different therapies will be used in combination and in the sequence across different SMA populations.

So that, in a nutshell, is sort of highlighting the broad categories of things where we think that we can differentiate.

Your next question comes from the line of Cory Kasimov with JPMorgan.

So when you talk about building through business development, I'm just curious how much financial flexibility or buying power you believe you have with your current balance sheet assuming you're taking -- you're not doing as much in terms of share buybacks as you've been focusing on BD?

So we have an EBITDA that is in approximation of $6 billion, if you'd take 2016.

And we anticipate that the max deal -- the maximum deal would likely be in the approximation of $10 billion to $12 billion, which is 2x the EBITDA on a net debt basis.

This is where we stand basically.

But again, the driver will be value for the shareholders, and we'll be very disciplined in the way we spend our money, the shareholders' money, actually.

Your next question comes from the line of Jim Birchenough with Wells Fargo.

Just on SPINRAZA, trying to get a better sense of the trajectory coming out of the second quarter.

And there are some moving parts here, so I'm wondering if you can help us on what's the distribution right now between Type 1, 2 and 3 in patients treated?

And when you think about the prevalence that's out there, when you eliminate the 60% who have spinal fusions, how many Type 2 patients are left to treat?

Thanks for the question.

This is Michel.

So basically, the current status is approximately 2/3 of the patients treated in the U.S. geography represents Type 2 and Type 3 populations.

And this is also the highest prevalent population today, okay?

As Al said, over time, the early-onset will grow based on expected improved survival.

So 60%, we did not anticipate that a few months ago.

So it shows that those patients are highly motivated.

And now we face the challenge of the more complicated patients for which the entire system is trying to overcome to secure that they can also improve on their disability.

So it's actually very difficult for me where I stand to state what will be the expected penetration of the later-onset patients at this stage.

Basically, the next few months will be very rich because they will inform us on the ability for the system to overcome those challenges.

The Biogen team is, as you can tell, fully committed and engaged.

They have done spectacular work.

They have not a sense of the strategy, they have the sense of the purpose.

And this is stronger than any things I have seen so far in my professional life.

So answer clearly your question, a few months and we'll be a bit more educated.

Thank you.

Your next question comes from Salim Syed with Mizuho Securities.

Thanks for all the color.

Michel, I had a question on biosimilars, since you brought it up a couple of times.

It seems like you guys are excited about the business.

So what are the pushes and pulls that are going into you actually exercising the option, because I believe that expires next year, if I'm not mistaken.

I think exercising the option makes sense.

This is my position, okay?

So -- and this will give us a lot of optionality on what we do with this stake in a successful JV.

As you can see, there is a lot of infliximab in the U.S. being announced today.

So there are a lot of good prospects for this JV that is engaged in also building a strong pipeline.

And we're looking at that very closely so that we can see how we can eventually enrich our commercial footprint.

We are very pleased with the success of this team.

Very focused, very nimble, without basically losing the focus in the -- on MS as a priority, and adding tremendous momentum to the top line, but also profitable since Q3 last year.

So these are all positives.

And I will just cap it by saying that from a value proposition, vis-à-vis the public payers in Europe, this is a tremendous add when we engage with payers because we come with new product launches and innovation.

And at the same time, with significant savings opportunity, mostly when you consider then the relevant market for the anti-TNF is approximately EUR 9 billion in Europe.

So we currently intend to opt in for the JV option.

And as you know, the option expires in 2018.

But we don't lose our focus strategically, and I will bring you back to what we said earlier in the call, the vision is to be the leader in neuroscience.

Your next question comes from the line of Andrew Peters with Deutsche Bank.

Just wanted to understand the $400 million comment a bit more.

It seems like you're shifting SG&A to R&D, and specifically to external opportunities.

So just wanted to get your sense on how you think about taking on additional clinical risks when it could be less likely that any external programs that you may pursue likely haven't done the same degree of translational work that you outlined earlier on the call.

So how do you think about kind of your biomarker-type driven approach to risk as it relates to external opportunities?

Thank you for a great question.

So where we stand, we did initiate the lean and simple a few months back when I took up the job.

We are still looking at the opportunities.

We have a long list of opportunities, so this is rich -- to be more fit than what we are today.

And we will need now together with the executive team to prioritize what we do first.

And as I've communicated earlier, we believe, we aspire to have a $400 million run rate in 2018.

Well, we are in mid '17, so we still have some time in order to put that in place.

Not much, we are starting implementing this year, but I don't have granularity today on the respective impact on each line of the P&L.

But certainly, we will see key geographies commercially and R&D benefit in order to add to the momentum in the short midterm and the long term.

And Mike will add some comments.

Yes, Andrew.

So just to address the question on clinical risk in biomarkers that you raised.

Look, this is why our primary focus is on things that are -- with an early clinical development, the early clinical space, not exclusively, but that's really primary.

So we're focusing on that.

And look, I think that in the areas where we work, we often see opportunities where others might not.

We often can develop capabilities and development that others don't have in that space.

And that's why we think we do just have asymmetric ability the more we are in the early clinical space.

Of course, we're going to look beyond that, though, which might -- there might be later programs, there might be earlier programs.

A key element of this reinvestment before that is the time bomb.

And so we're very conscious of the fact that they get to the growth that we're looking in the portfolio where our core skill set is in early clinical development means we need to be acting now to really be able to identify those opportunities and bring them in.

I'll turn it to Al for some comments.

On the question about risk in neurology investment, I think the strategy that's outlined by Michel and Mike makes a lot of sense.

And it leverages not only our capabilities in terms of understanding of disease, but also platforms like the intrathecal ASO.

So just as an example, we just take the movement disorder bucket.

There are a lot of rare and orphan diseases, for example in the spinocerebellar ataxia, that are amenable we think to intrathecal ASO.

They are genetically well-defined and the pathway could be very similar to the SPINRAZA pathway.

In the neuromuscular disorders, there is a ton of disease instead of rare and orphan diseases.

Again, many of those are due to spinal cord pathology, which we know now is amenable to intrathecal ASO.

So I think within those key strategic core areas that Mike talked about, there's a lot of opportunity.

And even for large diseases, such as ALS or Parkinson's, you can divide them into genetically well-defined subsets and take the very same approach.

And I think using the ASO technology, we know that the antisense gets to large parts of the central nervous system, not just the spinal cord.

We have data from nonhuman primates and from other places where we know that the ASOs can get all the way up into the brain and to the cerebral cortex.

So that opens up a whole array of opportunities.

So yes, there's risk in neurology.

And I think it's important to think about that risk and to manage it, but I think there's also great opportunity, particularly, when leveraging something like intrathecal ASOs.

Thank you Al.

Mike.

Yes.

I'll just pick up on that a little bit more, Andrew, because I think you've sparked a lot of interest and commentary there.

One thing that I've been very impressed by being here at Biogen is the thing, if you look at Biogen's historical probability of success from FIH to proof-of-concept in this space, it's roughly 4x higher than that of industry benchmarks in it.

So we have a demonstrated ability to actually change the probability of success equation in that space.

And Al cited beautiful examples on this, we've seen this before.

It was the PRIME study with aducanumab, actually, imaging patients and stratifying accordingly.

That's in the design capabilities, the smart type of design to have titration as part of it, the PRIME study, to be able to inform how we conduct our Phase III trials and then responding and executing appropriately.

End point development in -- whether it was in the SPINRAZA program that made a lot of difference or in -- even as we've been envisioning the plans for the opicinumab program.

These are the development of novel end points that are based on the fact that we've got really differentiated expertise in the area.

Thank you, Mike.

And before we take the last question, I would like to refer to a press release issued yesterday.

We have announced Alicia Alaimo that will be joining Biogen at some point of time soon, and we are very excited about this new hire.

Superb talent with a great leadership.

We did not yet finalize a date, but -- of the starting date, but we are working on that.

And here in the room, we have Jean-Paul Kress, who's leading the international markets.

And I would like to just extend the welcome.

Maybe you want to say a few words, Jean-Paul?

Yes.

Thanks, Michel, and good morning, everyone.

First, I'd like to say how much I'm excited to join Biogen.

I come from another company very much involved in MS as well.

But I have to say that I've always been very impressed by Biogen's great track record and leadership in MS and neurosciences.

So it's a great pleasure and a great privilege to join the company at this time of renewed ambition.

Obviously, it's too early for me to comment and still in early days.

I started like 5 weeks ago, currently assessing the business, getting a hand on a global commercial organization with a strong focus on strengthening our execution capabilities and reinforcing our MS leadership and launching SPINRAZA globally.

So very much looking forward to interacting with you in the future, provide you an update on our commercial projects.

Thank you, Jean-Paul.

We align on execution.

So we have our last question?

Our final question comes from the line of Brian Skorney with Robert Baird.

I guess I was just wondering if you could give us some more details on the value-based contracts that you mentioned in MS. Particularly, how much of the market these contracts currently represent?

And some idea of how the value winds up determining the price that you're getting revenue off of.

Yes.

Thanks for the question.

We're extremely pleased that the team was able to foster value-based contract.

I mean, I said earlier, and I was challenged, actually by saying, but tell me how.

And it was not easy.

The team, the U.S. team has done a spectacular work.

We spent time brainstorming on how we could bring the value of an entire portfolio to the customers and to the patient benefits, and be in a position to shift the position that where the industry is perceived as being part of a transaction on cost per product versus satisfaction, versus outcome, versus value, versus being part of the solution.

And the team has worked very hard, and I did believe into that.

I did put that in the scorecard of the organization because I believe that this is what the society deserves.

And these goals being our financial measures.

It's matter of being -- providing the value that what we stand for, since the outset of the discovery and the clinical development and translating that into the way we operate.

So we were able to foster 4 of them and 2 types.

One on -- that basically based -- gives the company responsibility for some of the discontinuation, but the provider and the customer opens immediately to another dynamic in terms of engaging with the partner.

And the other one on -- the other one is on, I forgot, can you remind me the word?

Oh, on the regional titers, and so we've got a payer and also a Medicare system, Medicaid system.

Yes.

One is on discontinuation and one is on relapse of MS. So I apologize, so relapse of MS. And therefore, for the entire portfolio at the end of the period, we see the relapse of MS, and then there is basically a higher discounts being provided in the case.

So these are regional customers.

It's -- these are pilots.

It's for us to try to learn and to measure the impact, bring real-world evidence and measure how we move forward from there.

It's not a financial objective at the outset.

It is just changing the paradigm and being the leader and being more responsible.

This is what the industry deserves.

Thank you.

Thank you.

Thank you, everyone, for attending today.

This will conclude today's conference call, and you may now disconnect.