Biogen Inc (BIIB) 2019 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Biogen Second Quarter 2019 Financial Results and Business Update.

(Operator Instructions) Thank you.

I would now like to turn the conference over to Biogen's CEO, Michel Vounatsos.

You may begin your conference.

Thank you.

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

I would like to start by thanking Matt Calistri for nearly 4 years he spent leading our Investor Relations program.

We wish him the very best in his next endeavor.

I would like to welcome Joe Mara, our new Vice President and Head of Investor Relations, who is a talented and energized finance and business leader with over 12 years of experience at Biogen across a number of functions.

I'm confident that Joe will prove to be a valuable resource for the investment community and I look forward to all of you getting to know Joe.

Joe, the floor is yours.

Thank you, Michel, and welcome, everyone, to Biogen's Second Quarter 2019 Earnings Conference Call.

I look forward to getting to know all of you over the coming months.

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

Our GAAP financials are provided in tables 1 and 2, and 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've also posted slides on our website that follow the discussions related to this call.

I would like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs.

These statements are subject to certain risks and uncertainties, and our actual results may differ materially.

I encourage you to consult the risk factors discussed in our SEC filings for additional detail.

On today's call, I'm joined by our Chief Executive Officer, Michel Vounatsos; Dr. Michael Ehlers, EVP of Research and Development; and our CFO, Jeff Capello.

We will also be joined for the Q&A portion of the call by our Chief Medical Officer, Dr. Al Sandrock.

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

Thank you, Joe.

Now let me begin with some financial highlights.

Compared to the same period a year ago, Biogen delivered solid top line and bottom line growth.

Second quarter revenues grew 8% to $3.6 billion.

Second quarter GAAP earnings per share grew 88% to $7.85 and non-GAAP EPS grew 58% to $9.15.

Based on our strong performance year-to-date and our updated outlook for the second half of the year, we are raising our full year financial guidance, which just we'll discuss in more details.

Now let me review the highlights from the second quarter.

First, revenues from our MS core business, including OCREVUS royalties increased 3% versus the prior year to $2.4 billion.

Excluding OCREVUS, the total number of patients on our MS products globally grew in the low single digits versus the prior year.

Critically, we are focused on addressing the IP challenge with TECFIDERA, while also preparing for the expected launch of VUMERITY towards the end of the year.

Second, SPINRAZA global revenues grew 15% to $488 million, driven by year-over-year revenue growth, both in the U.S. and outside the U.S. The number of commercial patients on SPINRAZA increased by approximately 12% from last quarter, and we now have approximately 8,400 patients on SPINRAZA, including the expanded access program and clinical trial.

Within the U.S., the number of SPINRAZA patients increased by approximately 4% versus Q1, which we believe demonstrates the potential for continued patient growth in the more mature markets.

We were very proud to announce new data for the NURTURE study of SPINRAZA.

We have continued to generate long-term data across broad patient populations, which underscore the compelling safety and efficacy profile of SPINRAZA.

Many are focused on the potential of new competition for SPINRAZA.

While we welcome new options for patients, we believe it is premature to make assumptions about the ultimate uptake of emerging modalities, given the large number of outstanding questions on the clinical profiles.

Importantly, SPINRAZA remains the only SMA therapy approved for all age groups.

Third, our biosimilars revenue grew 45% year-over-year to $184 million.

We continue to deliver on our broad portfolio of anti-TNFs, including the strong launch of IMRALDI, the market-leading biosimilar referencing HUMIRA in Europe.

We estimate that the uptake of our biosimilars products will contribute up to EUR 1.8 billion in health care savings across Europe in 2019, an important contribution to the long-term sustainability of the European health care systems that Biogen is proud to contribute to.

We believe this business continues to demonstrate a strong trajectory with a potential to continue to drive growth.

Fourth, we make continuous progress to develop and expand our pipeline as we work to build a multifranchise portfolio.

We added 4 clinical programs to our pipeline this quarter, including the 2 mid- to late stage ophthalmology gene therapy programs we acquired through Nightstar, also an oral BTK for MS and an oral compound for sporadic ALS.

In total, we have added 17 clinical program over the past 2.5 years as we have materially expanded and diversified our pipeline, which now includes 27 clinical programs.

Mike will provide more details on the development across our entire pipeline.

Fifth, we maintain our diligent focus on capital allocation to maximize potential shareholder returns.

During the second quarter, we generated $2 billion in cash flow from operations, and we benefited from the expiration of the contingent payments related to TECFIDERA.

In the second quarter, we repurchased approximately 10.4 million shares at an average price of $231 per share for a total of $2.4 billion.

As we have stated previously, we view share repurchase as an important element of thoughtful and value-creating capital allocation.

But at the same time, we have the financial flexibility and capacity to continue to evaluate potential external business development and M&A opportunities as evidenced by the 11 deals we executed over the past 2.5 years, including our recent acquisition of Nightstar.

As we have demonstrated, we are committed to maximizing returns for our shareholders while continuing to bring innovative therapies to patients, something that demands a thoughtful approach towards all our investments over both the short and the long term.

In summary, Biogen continued to execute on our strategic objectives.

We delivered solid financial results, raised our full year 2019 financial guidance, continued to progress our pipeline and we're opportunistic and disciplined with capital allocation.

Our core MS business demonstrated resilience and delivered an all-time high quarterly revenues.

SPINRAZA continued to grow in key markets, including mature markets such as U.S., and we presented compelling new data for the NURTURE study.

We grew our biosimilars business, driven by strong launch of IMRALDI.

We added 4 new clinical programs to our pipeline, and we generated significant cash as we focus on strategically allocating capital towards the areas we believe have the highest potential return.

Before I conclude, I would like to discuss how Biogen is evolving its strategy to drive long-term growth.

Together with our Board of Directors, we have reflected on the opportunities before us, and we continue to believe that the core focus on neuroscience will lead to long-term shareholder value creation based on the large and growing epidemiology, breaking science and our deep neuroscience expertise and core capabilities.

With that said, we are refining the 5 strategic priorities we outlined 2 years ago.

Our overarching goals are to enhance our focus on our current commercial business, accelerate the areas with the most attractive opportunities to build new franchises, rebalance the risk/reward profile of our pipeline, prioritize our investment based on clinical data and widen our lens to new therapeutic areas.

Our first priority remains unchanged: to maintain long-term leadership in MS and maximize the resilience of that franchise.

Our second priority is to build out a broader leading franchise in neuromuscular disorders.

We aim to build on SPINRAZA as the most successful rare disease launch ever, as we pursue multiple potential therapies for ALS as well as a muscle strengthening program with potential applicability across a broad range of neuromuscular diseases.

We have reported very encouraging results for tofersen in SOD1 ALS, and we believe this has positive implication for our broader portfolio targeting other form of the disease.

Our third priority is to continue developing and expanding our neuroscience portfolio, while now also widening our lens to selectively follow the science into therapeutic adjacencies, including immunology.

Mike will provide more details on our strategy in R&D.

Our fourth priority is to unlock the potential of biosimilars as a continued growth driver as we work to create financial headroom for innovation in the health care system.

We aim to both increase the size of our biosimilars portfolio and expand geographically.

And fifth, in parallel, we will continue to drive efficiencies, including adopting digitalization in our operating model through continuous improvement, and we will be diligent in capital allocation as we aim to maximize returns for our shareholders.

We believe these priorities reflect both the recent progress we made and the most attractive opportunities ahead of us.

We are working diligently to rebalance the risk profile of our pipeline, leading us to prioritize the areas we believe have the greatest probability of success and highest potential return.

Overall, Biogen's purpose remains the same: we aim to transform patients' lives by pioneering and leading neuroscience and therapeutic adjacencies.

I will now turn the call over to Mike for a more detailed update on our recent progress and long-term strategy in R&D.

Thank you, Michel, and good morning, everyone.

We're very pleased with the progress in our industry-leading neuroscience pipeline and with our expanding efforts in immunology.

Illustrating the momentum in our portfolio, we look forward to 10 mid- to late-stage readouts over the next 18 months.

As Michel mentioned, our top priorities are to continue strengthening our franchises in MS and neuromuscular disorders.

Beyond these priorities, we are refining the emphasis within our core and emerging areas.

To that end, based on the opportunities we see following our acquisition of Nightstar Therapeutics, we now view ophthalmology as a core growth area.

Moreover, recognizing the potential of our existing assets and longstanding expertise in immunology, we now consider this to be an emerging growth area.

Diving in, let me begin with advances we made in the second quarter to secure long-term scientific leadership in our MS and neuromuscular franchises.

At the annual meetings of the American Academy of Neurology and the Consortium of Multiple Sclerosis Centers, we presented new interim data from EVOLVE-MS-1, an ongoing single-arm open-label 2-year Phase III study, evaluating the safety and efficacy of diroximel fumarate to be marketed as VUMERITY if approved by the FDA in patients with relapsing-remitting MS.

Interim results in 696 MS patients showed that treatment with diroximel fumarate was associated with a 79% reduction in the annualized relapse rate over 1 year when compared to baseline, with an 83% reduction in newly diagnosed patients.

The mean number of gadolinium-enhancing lesions in patients treated with diroximel fumarate was reduced by 77% compared to baseline in the total population and by 96% in newly diagnosed patients.

Over 1 year, the rate of gastrointestinal adverse events leading to discontinuation was 0.7%.

GI tolerability of diroximel fumarate versus TECFIDERA is being evaluated in the ongoing EVOLVE-MS-2 study.

This study is now near completion and we expect results in the coming weeks.

I'm also pleased to announce that we have dosed the first subject in the Phase I study of BIIB091, a highly potent and selective small molecule inhibitor of Bruton's Tyrosine Kinase, or BTK.

BTK is a non-receptor tyrosine kinase that regulates the development and signaling of B cells and myeloid cells that are hypothesized to contribute to the pathogenesis of MS. Notably, BIIB091 is a noncovalent inhibitor of BTK, which we believe together with its high potency and selectivity has a potentially best-in-class profile.

This placebo-controlled single and multiple ascending dose study will evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of BIIB091 in healthy adults.

Turning to our progress in neuromuscular disorders.

At the Cure SMA Annual Conference in the 5th Congress of the European Academy of Neurology, we presented new interim data from the NURTURE study of SPINRAZA in presymptomatic infants with SMA.

Now including up to 45 months of analysis, this ongoing open-label study once again highlighted the remarkable efficacy profile of SPINRAZA.

Specifically, of the 25 presymptomatic patients with SMA treated with SPINRAZA in the study, 100% were alive, none required tracheostomy or permanent ventilation.

100% were sitting independently and 92% were walking independently or with assistance.

In addition, patients were approaching the maximum score of 64 on the CHOP INTEND measure of motor function.

At last visit, patients with 3 SMN2 copies achieved a mean score of 63.4 out of 64, and patients with 2 SMN2 copies achieved a mean score of 62.1 out of 64.

Importantly, these data also showed that the overwhelming majority of patients had achieved these motor milestones within the time frame of normal development.

Given the robust, durable efficacy of SPINRAZA across a broad range of SMA patients, its well-established longer-term safety profile with a reversible targeted mechanism of action and unsurpassed real-world experience, we believe SPINRAZA will remain a foundation of care in SMA for years to come.

Moreover, we believe that SPINRAZA demonstrates the transformative potential of antisense oligonucleotide therapies to dramatically alter the course of diseases of the nervous system.

We're excited by the depth of our ASO pipeline targeting the genetic underpinnings of a range of neurological diseases, such as ALS.

Specifically, as we described during our recent ALS webcast, we are targeting genetic forms of ALS where modulation of the genetic target is causally linked to disease.

For instance, we continue to advance the Phase III VALOR study of tofersen, an antisense oligonucleotide designed to degrade SOD1 mRNA in SOD1 ALS.

We believe that this study has the potential to support registration for this devastating genetic form of ALS.

We have now finalized the Phase III study design, which includes 99 patients treated with 100-milligram tofersen or placebo.

Over the course of this 20 weeks -- 28-week study, patients will receive 3 loading doses over the first 29 days followed by maintenance doses every 4 weeks.

Based on the final stage 3 study design, we expect a readout from the study in 2021.

We also continue to advance the Phase I study of BIIB078, an antisense oligonucleotide targeting hexanucleotide repeat expansions in C9orf72, the most common genetic cause of ALS.

Data from this study are also expected in 2021.

Further, we are pursuing novel scientifically driven drug targets for the larger opportunity in sporadic ALS.

To this end, I'm pleased to announce that the first patient was dosed in the Phase I study of BIIB100 for sporadic ALS last month.

BIIB100 is a small molecule inhibitor of Exportin 1, or XPO1, a nuclear transport factor that mediates the export of mini-proteins from the cell nucleus to the cytoplasm.

With BIIB100, we aim to test the hypothesis that reducing nuclear protein export may prevent the formation of neuronal cytoplasmic inclusions and thereby slow the clinical progression of sporadic ALS.

In movement disorders, the Phase II study of our anti-tau antibody, BIIB092, or gosuranemab, in progressive supranuclear palsy, is fully enrolled, with data expected in the second half of this year.

We believe the positive data from this study could potentially support a regulatory filing.

Also this quarter, we completed enrollment of the Phase II study of BIIB054, a monoclonal antibody targeting extracellular alpha-synuclein for Parkinson's disease.

Parkinson's disease is the second most common neurodegenerative disorder with a prevalence of approximately 3 million patients across the G7, and no available treatment to slow its inexorable progression.

Aggregation of misfolded alpha-synuclein and degeneration of nigrostriatal dopaminergic neurons represent hallmark pathologies of Parkinson's disease and genetic data from familial Parkinson's disease shows that alpha-synuclein can play a causal role in Parkinson's disease pathogenesis.

In the second half of next year, we expect to receive data from the 1 year placebo-controlled period of this study.

This will include safety data as well as a neuroimaging-based assessment of striatal dopaminergic transporter density.

Beyond BIIB054, we expect to advance up to 2 new antisense oligonucleotide programs for Parkinson's disease into the clinic by the end of the year.

And in Alzheimer's disease and dementia, this quarter, our collaboration partner, Eisai, dosed the first patient in the Phase III study of BAN2401 for early Alzheimer's disease and continued to advance the Phase III study for elenbecestat, also for early Alzheimer's disease.

In parallel, we continued to advance our portfolio of tau-directed therapeutics, including gosuranemab in Phase II, BIIB076, a distinct anti-tau antibody in Phase I and BIIB080, an antisense oligonucleotide targeting tau mRNA, currently in Phase I, being developed in collaboration with Ionis Pharmaceuticals.

Further, we're advancing a suite of next-generation preclinical programs, pursuing genetically validated targets for defined subsets of Alzheimer's disease and dementia patients.

Moving to neurocognition.

We continue to advance the Phase IIb study of BIIB104 for the treatment of cognitive impairment associated with schizophrenia.

Last month, the FDA granted fast-track designation to BIIB104 for this indication.

BIIB104 is a first-in-class AMPA receptor potentiator that we believe has compelling data from a number of distinct early clinical studies.

Data from this Phase IIb study are expected in late 2020.

As I mentioned earlier, we view immunology as an emerging growth area for Biogen that takes advantage of our longstanding in-house expertise in this area.

This quarter, we completed enrollment of the Phase II study of BIIB059, a humanized monoclonal antibody that binds BDCA2 for cutaneous lupus erythematosus, or CLE, and systemic lupus erythematosus, or SLE.

As shown in the Phase I study of BIIB059, recently published in the Journal of Clinical Investigation, treatment with BIIB059 led to BDCA2 internalization on plasmacytoid dendritic cells as well as decreased interferon pathway activation, reduced immune infiltrates in skin lesions and decreased cutaneous disease activity in patients with SLE and CLE.

With limited available treatment options and a prevalence of approximately 800,000 patients across the G7, we aim to bring forward a potentially new disease-modifying therapy to this area of high unmet need.

Data from this study are expected by the end of this year.

Further, in collaboration with UCB, we plan to initiate a Phase III program with the -- in the first half of next year for dapirolizumab pegol, an anti-CD40 ligand PEGylated Fab in patients with active SLE despite standard-of-care treatment.

This decision is based on the promising results of the Phase IIb clinical trial.

Interim data from this study were presented at the European Congress of Rheumatology last month.

As part of the ongoing process of balancing risk and opportunity within our pipeline, we continue to strategically prioritize our programs and disease areas.

To that end, we have decided not to initiate the Phase III trials for vixotrigine, or BIIB074, in trigeminal neuralgia this year, although we will continue with Phase III preparation activities in advance of the potential initiation next year.

We will continue to evaluate our trigeminal neuralgia program, and we will assess potential initiation of Phase III studies next year.

We continue to advance the Phase II study of vixotrigine in small fiber neuropathy and now expect a readout from that study in 2021.

In addition, we continue to enroll the Phase III study of BIIB093 for the prevention and treatment of severe cerebral edema in patients with large hemispheric infarction with a potential launch as early as 2022.

We also expect a Phase II readout of TMS-007 in acute ischemic stroke by the end of next year.

Finally, emphasizing our focus on genetically validated targets in defined patient populations to rebalance pipeline risk, let me conclude by highlighting our recent acquisition of Nightstar Therapeutics.

We are extremely excited to join forces with this talented team of drug developers to address serious genetic causes of blindness, for which there are no current treatment options.

This acquisition accelerates our entry into ophthalmology with a potential to deliver first-in-class gene therapies to patients suffering from severe retinal diseases.

Our lead drug candidate, NSR-REP1, now known as BIIB111, is an AAV-based gene therapy, delivered by targeted subretinal injection for the treatment of choroideremia, a rare degenerative disease that inevitably leads to blindness, for which there are no current therapies.

In Phase I/II trials, treatment with BIIB111 via subretinal injection was associated with a higher rate of maintained vision and in a subset of patients, a meaningful improvement in visual acuity, suggesting that BIIB111 has the potential to significantly alter the course of this disease.

We expect data from the Phase III STAR trial of BIIB111 in the second half of next year.

Our second clinical stage asset, NSR-RPGR, now known as BIIB112, is an AAV-based gene therapy targeting X-linked retinitis pigmentosa or XLRP.

Like BIIB111, BIIB112 is delivered by targeted subretinal injection.

Data from the Phase I/II dose-escalation study showed promising signals of early efficacy, including increases in central retinal sensitivity as measured by microperimetry.

A Phase II/III dose-expansion study of BIIB112 is currently enrolling, with data expected in the second half of next year.

These diseases, which inevitably lead to blindness and the associated severe disability, are part of a larger set of inherited retinal diseases, which have been estimated to afflict up to 200,000 patients in the U.S. alone that may be amenable to similar genetic medicine solutions.

We look forward to leveraging our newly acquired leading clinical platform in speciality ophthalmology to potentially expand the future opportunity across inherited retinal diseases.

As Michel mentioned, including our new Nightstar assets, we added 4 clinical programs to our pipeline this quarter, BIIB111 for choroideremia; BIIB112 for X-linked retinitis pigmentosa; BIIB091, a small molecule BTK inhibitor for MS; and BIIB100, a small molecule XPO1 inhibitor for sporadic ALS.

In total, we have added 17 clinical programs over the past 2.5 years as we have continued to expand our pipeline, and we expect to advance up to 3 additional programs into the clinic in the second half of this year, including up to 2 new antisense oligonucleotide programs for Parkinson's disease.

As we widen our strategic lens, we will continue to mitigate risk by seeking later-stage assets, prioritizing targets that have been validated by human genetics, deploying biomarkers in early-stage clinical programs and leveraging our asymmetric capabilities and expertise in neuroscience.

With 10 mid- to late-stage readouts over the next 18 months, including 8 Phase II readouts, the Phase III readout of BIIB111 and head-to-head data for VUMERITY, we believe we are poised to reinforce our core franchises in MS and neuromuscular disorders, build further depth in our neuroscience portfolio and follow the science into emerging areas.

Above all, we remain focused on our goal of developing transformative medicines for patients living with devastating neurological diseases.

I will now pass the call to Jeff.

Thanks, Mike.

Good morning, everyone.

I'll now review our financial performance for the second quarter of 2019, starting with revenues.

As Michel mentioned earlier, we had a strong Q2 2019 from a revenue perspective.

Total revenues for the second quarter grew 8% year-over-year to approximately $3.6 billion.

Overall, our MS business delivered revenues of approximately $2.4 billion in the second quarter 2019, including OCREVUS royalties of approximately $183 million, growing 3% versus the prior year.

Global MS revenues in Q2 2019 were stable versus the prior year without OCREVUS royalties.

U.S. MS revenues in Q2 2019 were impacted by a decrease in channel inventory of approximately $25 million compared to a decrease of approximately $50 million in Q2 2018 and a decrease of approximately $175 million in Q1 2019.

In addition, this quarter, we benefited from lower-than-anticipated discounts and allowances, which is not expected to continue for the rest of the year.

Global second quarter TECFIDERA revenues increased 6% versus the prior year, driven by revenue growth both in the U.S. and outside the U.S. U.S. TECFIDERA revenues were impacted by a decrease in channel inventory of approximately $10 million in the second quarter of 2019 compared to a decrease of approximately $40 million in Q2 2018 and a decrease of approximately $110 million in Q1 2019.

We were pleased to see a continued increase in the share of new prescriptions for TECFIDERA in the U.S., and for the second consecutive quarter, our share of new prescriptions exceeded our share of total prescriptions.

Additionally, our share of new prescriptions in the U.S. for TECFIDERA is now at its highest point since the launch of OCREVUS.

Outside the U.S., TECFIDERA performed very well in Q2 2019 with continued volume increases across all large European markets and Japan versus the prior year, somewhat offset by pricing pressure in several European countries.

In total, TECFIDERA delivered strong global patient growth of approximately 8% year-over-year.

Q2 global interferon revenues, including both AVONEX and PLEGRIDY, decreased 11% versus the second quarter of 2018 due to the continuing shifts from the injectable platforms to oral or high-efficacy therapies.

Within the U.S., AVONEX and PLEGRIDY were impacted by decrease in channel inventory of approximately $5 million compared to a decrease of approximately $10 million in Q2 2018 and a decrease of approximately $50 million in Q1 2019.

Outside the U.S., interferon revenues benefited by approximately $10 million due to channel dynamics within Europe.

TYSABRI worldwide revenues increased 2% versus the second quarter of 2018.

Within the U.S., TYSABRI revenues were impacted by a decrease in channel inventory of approximately $10 million compared to relatively stable levels in Q2 2018 and a decrease of approximately $15 million in Q1 2019.

We were pleased to see stability in TYSABRI revenues in the U.S., along with growth outside the U.S. versus the prior year.

We believe the recent launch of Mayzent has primarily impacted Gilenya so far with minimal impact on TECFIDERA and TYSABRI in the second quarter.

Overall, we were pleased with the execution of our MS franchise and the strong performance of our MS business in the second quarter.

We continue to be focused on maintaining resilience and MS market leadership.

Let me now move on to SPINRAZA.

Global second quarter SPINRAZA revenues increased 15% versus the prior year to $488 million.

In the U.S., revenues increased 12% versus the second quarter 2018 and 3% versus Q1 2019, driven by continued patient growth, which we believe demonstrates that SPINRAZA has the potential for continued steady growth in larger, more mature markets.

The number of patients on therapy in the U.S. increased 4% as compared to the end of the first quarter of 2019.

Since its approval in late May, we have not seen a meaningful impact from ZOLGENSMA on SPINRAZA performance in the U.S. As a reminder, ZOLGENSMA is only indicated for children under 2 years old, which represents approximately 5% of the prevalent market.

In the U.S., we continue to make strong progress with adults.

In the second quarter, we were pleased to see approximately 50% of new starts were adults, and the number of adult patients in the U.S. increased by approximately 7% versus the first quarter of 2019.

We still believe there is a large opportunity remaining as we've only reached approximately 20% of the adults in the U.S., and as a reminder, this is the largest patient segment representing approximately 60% of the SMA market.

In the U.S., we observed discontinuation rate is relatively low, currently in the mid-single digits on an annualized basis.

Outside the U.S., revenues increased 19% versus second quarter of 2018, driven by continued new country launches and increased penetration across all major geographies.

In total, outside the U.S., the number of commercial SPINRAZA patients increased approximately 17% versus the prior quarter.

We recorded revenues from over 40 international markets in the second quarter.

During the past quarter, we secured broad reimbursement in the U.K., Ireland and Argentina.

As a reminder, we believe the global opportunity for SPINRAZA is significant and even greater than we'd initially anticipated.

We estimate that there are over 45,000 individuals with SMA in the markets where Biogen has a direct presence, including attractive markets of Asia Pacific and Latin America.

Versus Q1 2019, ex U.S. revenues decreased 13%.

As we previously mentioned on our last earnings call, Q1 revenues benefited from a positive pricing adjustment of $14 million in France and the timing of shipments across several international markets, which can be lumpy at times, affecting the quarter-over-quarter comparison.

In the second quarter, ex U.S. revenues were also impacted by the continued transition from loading to maintenance doses in more mature markets.

Although overall ex U.S. revenues declined due to quarterly dynamics, we saw quarter-over-quarter patient growth in the mid-single digits across the larger, more mature European markets as well as Japan, significant patient growth in Turkey and strong double-digit patient growth across multiple markets in Asia Pacific and Latin America.

Overall, we were pleased to see continued patient growth across the larger mature markets and continued rapid uptake for more recently launched markets.

Given our expected continued patient growth and the execution across many global markets, our established product profile and the significant market opportunity, we remain optimistic of our SMA business and its trajectory.

Let me now move on to our biosimilars business, which generated $184 million this quarter, growing 45% versus the prior year.

We estimate there are now over 170,000 patients using our biosimilars in Europe.

BENEPALI has continued to grow in volume and market share across Europe, strengthening its leadership position in markets such as Germany, the U.K., Norway and Denmark.

We were pleased to report that BENEPALI has now become the #1 prescribed Enbrel biosimilar across the major EU 5 markets.

FLIXABI volume grew 96% versus the prior year.

IMRALDI volumes grew 40% versus 44% in Q1 2019 and it continues to be the leading launched HUMIRA biosimilar across Europe.

The IMRALDI autoinjector has been well received in the market and continues to build on our success with BENEPALI in offering an improved patient experience at a lower price point.

In a recent study comparing the IMRALDI autoinjector device with the HUMIRA device, 85% of nurses and 78% of patients preferred the IMRALDI device.

Our biosimilars business, along with SPINRAZA, has helped drive geographic diversification of our revenue base.

We aim to continue capitalizing on global growth opportunities for both our current commercial portfolio and our pipeline products.

Total anti-CD20 revenues in Q2 increased 18% versus the prior year, primarily driven by OCREVUS royalties.

Q2 OCREVUS royalties benefited by approximately $17 million due to adjustment related to prior periods.

We continue to expect RITUXAN revenues to be impacted by the entry of biosimilars in the U.S. beginning in the fourth quarter of this year.

Total other revenues in the second quarter increased 47% versus the prior year.

These revenues tend to be lumpy and difficult to predict.

Let me now turn to gross margin performance.

Q2 2019 gross margin was 87%, an improvement versus Q1 2019 following the sale of most of the remaining Bioverativ inventory in the first quarter, which carried a very low gross margin.

Q2 GAAP and non-GAAP R&D expense were both 13% of revenue.

Q2 R&D benefited from both savings related to aducanumab as well as the timing of spend.

As a reminder, the second quarter 2018 R&D expense included $324 million related to the upfront payment to Ionis.

Q2 GAAP R&D expense also included an additional $162 million related to our equity investment in Ionis.

Q2 GAAP SG&A was 16% of revenue and non-GAAP SG&A was 15% of revenue.

The increase in GAAP SG&A expense versus the prior year was primarily due to approximately $33 million in acquisition-related charges incurred in connection with our recent acquisition of Nightstar.

Q2 GAAP other expense was $197 million, including $174 million in net losses on investments, principally driven by a decrease in the fair value of our equity investment in Ionis as well as a realized loss on the sale of Ionis stock versus the prior quarter.

In Q2 2019, non-GAAP other expense was $19 million.

In Q2, our GAAP and non-GAAP tax rates were both approximately 14%.

During the second quarter, we completed the change to our tax profile.

This resulted in a decrease of 500 basis points to our GAAP tax rate and a decrease of 430 basis to our non-GAAP tax rate for the second quarter.

This benefit is not expected to recur post 2019.

We repurchased approximately 10.4 million shares in the second quarter at an average price of $231 for a total value of approximately $2.4 billion.

We completed our 2018 share repurchase authorization.

And as of the end of the second quarter, we had approximately $4.1 billion remaining on our 2019 authorization, which now brings us to our diluted earnings per share.

In the second quarter, we booked GAAP EPS of $7.85, an increase of 88% versus the prior year and non-GAAP earnings of $9.15, a 58% increase versus the prior year.

As a reminder, Q2 2018 GAAP and non-GAAP EPS were impacted by a total of $2.84 and $1.52, respectively, related to BD transactions affecting year-over-year comparison.

We generated approximately $2 billion of net cash flows from operations in the second quarter, and this quarter, the contingent payments related to TECFIDERA expired.

We ended the quarter with approximately $4.3 billion in cash and marketable securities and $5.9 billion in debt.

Let me now turn to our updated full year guidance for 2019.

We expect revenues of approximately $14 billion to $14.2 billion, which would represent year-over-year growth of approximately 4% to 6%, which is an increase from initial guidance of 1% to 3% growth.

This range is driven primarily by uncertainty in channel inventory levels in the U.S. at the end of the year.

We anticipate GAAP and non-GAAP R&D expense between 15.5% and 16.5% of sales, a slight decrease from prior guidance.

This reflects a savings from the termination of the Phase III study of aducanumab as well as additional operating expenses for the Nightstar programs we acquired.

We expect GAAP SG&A expense to be approximately 16% to 17% of revenues and non-GAAP SG&A expense to be approximately 15.5% to 16.5% of revenues.

We expect our GAAP tax rate to be approximately 17% to 18% and our non-GAAP tax rate to be approximately 15.5% to 16.5%.

We anticipate full year GAAP diluted EPS of $29.60 to $30.40, representing growth of 37% to 41% versus 2018 and non-GAAP diluted EPS to be $31.50 to $32.30, representing growth of 20% to 23%, also an increase versus prior guidance.

Of note, this guidance does not include any impact from potential acquisitions or large business development transactions as both are hard to predict.

I'll now turn the call back over to Michel for his closing comments

Thank you, Jeff.

Biogen demonstrated strong commercial execution this quarter, and we continue to apply our world-class capabilities and expertise to progress our pipeline, all while maintaining a diligent focus on continuous improvement and strategic capital allocation.

Between now and the end of 2020, we expect continued progress as we aim to build a multifranchise portfolio, including 10 mid- to late-stage data readouts in MS, PSP, lupus, epilepsy, Parkinson's disease, cognitive impairment associated with schizophrenia, stroke and ophthalmology and potential regulatory approval in the U.S. for VUMERITY in MS.

Finally, I want to reiterate our commitment to maximizing returns to our shareholders and bring innovative therapies to patients over the long term.

This demands that we continue to allocate capital efficiently, effectively and appropriately.

As we have demonstrated in the past, we will always strive to have an optimal capital structure as well as aim for superior returns from the investment we make.

As we are closing a solid quarter, I would like to step back and comment on what we stand for as a company and how we conduct our business.

We believe doing the right things for patients, employees, the environment and the communities we serve will help build sustainable value for all our stakeholders, including our investors.

After 41 years, we are extremely proud of our track record and commitment to sustainability.

Finally, 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, our past and future achievements could not be realized without their passion and commitment.

With that, we will open the call for questions.

(Operator Instructions) Our first question comes from the line of Cory Kasimov with JPMorgan.

So I want to ask about SPINRAZA.

And it sounds like there hasn't been an impact thus far from ZOLGENSMA at least to date, but I'm curious if you're seeing any signs of potential warehousing of the minority portion of SMA patients that are currently eligible for gene therapy?

And how you are thinking about the growth outlook for the product when considering a nice year-over-year jump in sales, but another quarter-over-quarter decline before competition potentially kicks in?

So Cory, this is Jeff.

To this point, we don't see -- we haven't seen any indication that there may be any warehousing.

I mean it's difficult to tell, but there is no impact at this point in time.

I mean as we mentioned, patients were up pretty well year-over-year and they were up sequentially.

And if you look at kind of the larger segment of that patient pool, which is the adult segment, it's 60% of the market, we've only penetrated 20% of that and ZOLGENSMA was not indicated for that.

So we think there is ample opportunity to grow within the U.S. and continue to post impressive patient numbers.

Outside the U.S., the opportunity frankly is larger.

And if you look at the chart that we put out last quarter, we originally thought that the epidemiology within SMA was 20,000.

We now think it's 45,000.

So there's more patients outside the U.S. than U.S. We can continue to open up new countries.

And our experience in U.S. and in the large European markets would indicate that we can continue to kind of penetrate the mature markets and open up new markets.

So we think it's a good growth opportunity in front of us.

Mike?

Yes, Cory, I'll add to that.

Well, I mean, clinically, one thing that's -- that you need to consider in this is for what ZOLGENSMA is indicated for is the under age 2, the -- usually the more severe SMA patients for which time is really critical.

We know that the time of treatment even before symptoms, but certainly as a function of symptom stage is really essential.

So that would tend clinically to be very different from a typical kind of scenario where you might be waiting for a different new treatment.

So this is Michel.

The underlining uptake of patients behind this very successful launch is the most, I'll say, positive news in mature markets and in emerging geographies where we are gaining access.

So we remain confident.

Obviously, there are more clinical trials in that space too and it's still the early days for these new therapeutic alternatives.

And we welcome alternatives for patients based on the severity of the disease.

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

Maybe a 2-parter.

Just wondering, Michel or Jeff, if there are any additional steps you're considering to bolster your balance sheet here beyond the sale of the Hillerød facility?

And then you were fairly active on the repo front this quarter, just -- should we expect that pace to continue through the second half of the year?

And should we read into it as a sign of your confidence in your TECFIDERA IP?

So one of the many hallmarks of Biogen is a company with very strong cash flows.

We generated $3.4 billion of operating cash flow within the first 6 months and we've now had the expiration of the TECFIDERA Fumapharm payment.

So at this point in time, there's really no intent to kind of -- if you mean by change the balance sheet, lever up the balance sheet, it's certainly not the intent as the company generates a lot of cash.

With regard to uses of cash, I think we've been very consistent that our capital allocation strategy is centered around optimizing the capital allocation to maximize shareholder value and we'll continue to do that.

And the good thing is we've got ample capacity to do that either vis-à-vis share repurchase or continuing to add assets to the clinical pipeline, business development or M&A.

So I would look for us to be active across the board because we'll have the capacity and it's very strong company from that perspective.

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

I wanted to focus on TECFIDERA for a second.

And it seems that a few ANDA filers have withdrawn their ANDAs and the case has been dismissed under a joint stipulation.

So my question is, has there been a formal settlement because we haven't seen a press release or did those ANDAs just not meet bioequivalence?

So Umer, this is Jeff.

We're not going to comment on the specifics of our IP situation, only to say that, as Michel has said, a lot of interest in kind of getting it resolved.

Your next question comes from the line of Geoffrey Porges with SVB Leerink.

Congratulations on the good numbers in the quarter.

I suppose I have to ask follow-up on aducanumab.

Previously, you disclosed that you were continuing to monitor the patients in the study to see whether there was any evidence of clinical effect from the -- in the pivotal studies with prolonged exposure.

Could you share with us what you have found with that extended follow-up?

And secondly, in that context, how much are you continuing to invest in the amyloid hypothesis and particularly in 2401 elenbecestat?

Could you kind of reconcile those 2 for us?

Geoff, thank you for asking this important question.

Obviously, since we did not present at AAIC, it is clear to everybody that we are not ready.

We are not finished with our analysis of the data first available at the cutoff date of the fragility analysis, but also the data that is coming after the cutoff date of the fragility.

So Biogen said and will continue to follow the science and these analyses are of critical importance, as you can imagine for the patients, for the community, for public health and also for all the stakeholders.

And at the same time, Biogen is trying to reach new frontiers, which is difficult to define.

So we will present the results of ENGAGE and EMERGE studies at future medical meetings and I hope you appreciate that we cannot say much more at this stage.

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

I had a question for Al Sandrock, if he's there, or Mike, but that was regarding the comments around BIIB092, the tau PSP study.

I know you completed enrollment, I guess, late fall last year, so the data is coming like you alluded to.

Maybe just talk to how we should put into context a Phase IIb?

How much confidence you would have on the end point, but perhaps more importantly, if there are prespecified end points you're looking at subgroups?

What's important to you to define supporting the tau hypothesis for tauopathies or, more importantly, Alzheimer's?

Michael, this is Al.

So the -- we've been saying that the results will be available at the -- later this year toward the end of this year.

As you know, in the earlier phase studies, we showed about a 90% decrease in CSF-free tau -- total tau.

And so we definitely have target engagement because the antibody was given intravenously and we looked in the CSF at tau.

So we have target engagement in the CNS, but we're hoping to cease an effect on our rating scale for PSP, which is not that different from the Parkinson's rating scale.

As you know, there are -- it has many of the -- shares many of the features of Parkinson's disease, but there are some additional features that relate to PSP that will also be measured.

And yes, the big question right now is we have target engagement.

We have lowered CSF tau.

We're hoping to catch the tau as it spreads the abnormally -- the misfolded tau that spreads from cell to cell.

There is a lot of great data that there's prion-like propagation in the CNS in PSP and in other tauopathies, and we'll see whether or not we'll catch it in as it tries to spread and have a clinical effect.

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

Just a couple of quick things on the pipeline.

On the PSP trial just following on Cory, how many of those patients had tau in their brain body imaging?

I know that wasn't available ahead of the trial, but I suspect you did it during the trial.

And second, Mike, I noticed you upped your investment in Skyhawk a couple of weeks ago.

Care to share with us roughly how long before you'll have an oral SMA product in the clinic?

Okay.

Yes, thanks for the question.

I'll take both of those.

First of all, just one point of clarification with the tauopathy in PSP.

The current PET imaging tracers for tau don't recognize the form of tau that accumulates in PSP, recognizes the form of tau that accumulates in Alzheimer's disease.

This has to do with the 3-hour versus 4-hour tau.

So just to clarify that.

None of them would have been imaged because there hasn't been an ability to image tau in the brain for that.

On Skyhawk, yes, the collaboration is proceeding very nicely.

We're working on several targets with them.

We're zeroing in on potential new clinical candidates.

We don't have a time line just yet, but I would say that we're very, very happy with the progress on many targets in this way and we hope to get some to the clinic over the next couple of years, let's say.

Your next question comes from the line of Phil Nadeau with Cowen and Company.

Just one question on the EVOLVE-MS-2 trial.

You mentioned the data is coming out over the next few weeks.

Could you remind us of the design of the study?

And in particular, aside from GI tolerability, what other data is going to be disclosed in the top line release?

And how you would frame risk/benefit that's likely to come out of the study?

So what would be a meaningful GI tolerability improvement in your minds?

Phil, this is Al Sandrock.

So it's basically a head-to-head study against TECFIDERA.

The primary outcome measure is a patient-reported outcome on GI tolerability, and we're looking at essentially all aspects of GI tolerability, whether it's upper or lower, the severity, the duration.

And hopefully, what we'll get at the end of it is an incidence -- an idea of the difference in the incidence of GI tolerability events between comparison with TECFIDERA as well as severity.

And in talking to our -- the prescribers, the MS prescribers, incidence is probably the most important thing, although ultimately you want to try to improve compliance.

So we'll also be looking at things like discontinuation rate, which, as Mike said, in the EVOLVE-1 study, we had a very low discontinuation rate.

So we're hopeful that we'll see a nice comparison to TECFIDERA in this EVOLVE-2 study.

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

I just wanted to follow up on something that Phil just asked.

Can you just talk if you're able to achieve the profile that you've talked about with VUMERITY in terms of, let's say, lowering of incidence?

I mean how does that impact how you think about the drug commercially?

Would you expect to be able to try and switch TECFIDERA patients who're already stable because I know most of the GI effects come early in the drug?

Or how should we think about VUMERITY commercially if you're able to achieve that profile?

So thanks for the good question.

Obviously, we need to consider at the outset that the patients on TEC after the 4, 5 first weeks have stabilized and they are doing fine.

So the strategy is not to switch, the strategy is to expand.

Yes, I mean most physicians that I talked to would not want to switch somebody who's done well who's stabilized the initial phases of taking TECFIDERA and are doing well in terms of tolerability.

Of course, if there is breakthrough disease, you would consider switching probably to a different mechanism of action.

Your next question comes from the line of Salim Syed with Mizuho.

Mike or Al, I had a question for you.

Actually, you guys have mentioned in the past, I believe, that you are looking at new MS targets.

And I was curious what your thoughts were on EBV as a target.

Yes, this is Mike.

Look, I'll say, this has been a longstanding interesting hypothesis.

We've really rejuvenated our effort on early targets in MS, a novel target, including some things that might be virally based and other cell-based things.

So early days in a lot of that, but we've created a new highly dedicated group focused on early-stage MS research in novel mechanisms.

And so where we see an opportunity, independent of modality, we will advance that.

The EBV is a very interesting virus.

If you look at epidemiological studies in MS, particularly out of Harvard School of Public Health, there is a strong implication that EBV infection precedes the onset of MS. It's very tantalizing that the B-cell follicles that are in the CNS, in the submeningeal space, generally are EBV positive.

EBV affects B-cell function and B cells are obviously important in MS as seen by all the drugs that are directed against B cells.

Ocrelizumab and BTK inhibitors seem to have efficacy.

So I think in some ways, EBV is very interesting as a causal virus.

However, in terms of treatment, once the virus activates the immune system toward an autoimmune state, I don't know whether getting rid of the virus will help.

These B-cell follicles in the CNS, perhaps getting rid of the EBV positive B cells there may be helpful, but treating the virus itself, you'd have to design a study very, very early, perhaps even before MS even starts.

Your next question comes from the line of Brian Abrahams with RBC Capital Markets.

Congrats to Joe on his new role.

You talked about immunology as a more formalized area of focus.

I was wondering if you can speak a little bit broadly about how you plan to approach the space.

Maybe which of your assets you expect to prioritize and then potential BD and future commercial strategy that you're thinking about within immunology?

Sure, Brian, this is Mike.

I'll start out with that.

So we're very happy about this.

Where we're going to start with focus is where we've got existing assets and/or expertise.

By and large right now, that's really going to start with our lupus programs and include BIIB059, the BDCA2 antibody and dapirolizumab pegol, the anti-CD40 ligand Fab and from that, we will look at things that touch on that, either within that indication space or perhaps in and around those mechanisms to expand.

It will start with those places where we've got existing assets and/or capability.

We think it fits very nicely with a lot of the ongoing programs and things that we're otherwise doing.

It also, I'd say on the business development front, does give us an ability to look somewhat more broadly at external opportunity we might be able to use for either early or late supplementation of the pipeline.

Your next question comes from the line of Paul Matteis with Stifel.

I wanted to ask a question on business development.

What is Biogen's thinking on the ongoing delays with the Roche-Spark deal and what that might mean for your ability to do M&A in areas where you already have a strong presence?

For example, you've a pretty broad pipeline and assets either in your pipeline or marketed in a lot of areas of neurology.

Does the delay that's going on, which seems to be about therapeutic overlap, make you at all reluctant to be more aggressive in M&A in areas where you already have a presence?

How does this complicate things, if at all?

So it's always difficult to kind of -- I think what you're getting at is kind of antitrust.

I think we'll take a careful approach as we look at business development, but we don't see that as a deterrent to be active from a BD or M&A perspective, but we'll certainly be careful as we kind of look at targets.

Your next question comes from the line of Evan Seigerman with Crédit Suisse.

Congrats on the progress.

One for Al and Michael.

So with the recent failure of a BACE inhibitor reported by Amgen and Novartis, why does Biogen continue to pursue development of elenbecestat?

And generally given the failure of Abeta antibodies, what gives you confidence that targeting tau is the right approach for AD?

So Evan, why don't I take the beginning of this.

Of course, we're highly aware of all the announcements in and around BACE inhibitors and recent Novartis and Amgen announcement of the termination there -- discontinue their BACE inhibitors.

So we're highly aware of this.

I would say patient safety is paramount in our clinical trials, including the MISSION AD1 and MISSION AD2 trials for the BACE inhibitor that was being conducted in collaboration with our collaboration partner, Eisai.

Those studies have an independent data and safety monitoring board that reviews the data regularly from those Phase III studies and to date, the DSMB has recommended the studies proceed.

They have an ability to look at that data when they want and they're certainly aware of, likewise, the safety signals and discontinuation of other programs and they will be assessing as it goes along.

As to BAN2401, I'll refer back to what Michel commented on earlier, which is that we're in the midst of a very thorough analysis of all the ENGAGE and EMERGE data from aducanumab, which is an extensive data set and we would like to have a full understanding of that data before we make specific forward development decisions on BAN2401.

I think we have time for about 2 more questions.

Your next question will come from the line of Carter Gould with UBS.

I guess for Michel and Michael, as far as your comments earlier around rebalancing the risk/reward of the pipeline, it sounded like that was really kind of externally focused, but I wanted to ask if there is any sort of thoughts underway to also revisit maybe our existing programs and any change there in sort of the hurdle for moving programs forward?

Any color there would be appreciated?

Yes, Carter, a good question.

So I mean a few things we'd say to maybe flesh that out a little bit.

I mean we've had an ongoing effort over some time to really look at the risk/reward profile and that means to be able to balance risk in different categories and includes things like seeking later-stage assets where we can, taking advantage of unique capabilities where we see them leveraging our depth in certain areas like MS and neuromuscular where we've got very strong franchises and likewise, going after the types of diseases where we've got high confidence, things where you've got genetically defined targets and genetically defined patient populations.

And you can see examples of that in our pipeline that have been very intentional.

These include things like VUMERITY as a very good example of a rebalancing risk, supporting our MS franchise.

I think you see that within our Nightstar acquisition and the mid- to late-stage clinical programs in gene therapy there, choroideremia and X-linked retinitis pigmentosa and hopefully that came across in my emphasis on our confidence in our ASO platform and ASO programs that we've been advancing in collaboration with Ionis.

In addition to that, I think, and Michel spoke to this, we look to our important clinical readouts, our 10 upcoming clinical readouts in the next 18 months as trigger points to help define and refine the areas that we really want to concentrate resource and activity on in the future.

If I may just add to the good comments made by Mike, it's also the opportunity to widen the strategic lens and important readouts in the coming months with BIIB059 in lupus.

So stay tuned.

Our final question will come from the line of Mohit Bansal with Citigroup.

Very warm welcome to Joe from our side.

So quickly on guidance, it appears to be indicating a slight decline or maybe flat revenues in the second half versus the first half.

You mentioned inventory.

But could you please provide little bit more granularity on the process -- or thought process for the remainder of the year?

Is it RITUXAN biosimilar, which is the bigger factor here?

So we're not -- we have a policy of kind of giving guidance twice a year and not doing it by the product level, but what I can do is kind of maybe point you to some areas within historical numbers.

Certainly in the first quarter, Bioverativ inventory sale certainly helped the first quarter inventory growth.

You have to look at that.

That was a onetime-type element.

We also in the second quarter, the MS business was quite strong as a result of the less of an inventory drive down and some gross to net favorability, which we don't expect to continue and then 2 other factors that I'd highlight is SPINRAZA will face some more difficult comparisons in the second half of this year compared to the second -- first half of this year, the numbers get bigger and then finally, the RITUXAN and GAZYVA, we've said all along that we expect competition to come in, in the fourth quarter.

So if you look at all those factors, it would indicate there would be a little more strength in the first half versus the second half.

So thank you all for attending our call today.

Another very strong quarter for our company.

Very exciting times at Biogen nowadays.

Thank you.

Talk to you soon.

Ladies and gentlemen, this will conclude today's call.

Thank you all for joining and you may now disconnect.