Biogen Inc (BIIB) — Q1 2022 Earnings Call Transcript

Thank you. Good morning, and welcome to Biogen's First Quarter 2022 Earnings Call. 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 our GAAP financial measures and 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 4 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. I would like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. On today's call, I am joined by our Chief Executive Officer, Michel Vounatsos; Dr. Priya Singhal, Interim Head of Research and Development; and our CFO, Mike McDonnell. As a reminder, during the Q&A portion of the call, we kindly ask that you limit yourself to one question. I will now turn the call over to Michel.

Thank you, Mike. Good morning, everyone, and thank you for joining us. We continue to execute on our core business objectives in the first quarter. Mike and Priya will review our quarterly performance and recent progress in R&D, while I focus on our strategy and near-term operational priorities. Let me start with a few comments on the recent national coverage determination by CMS for amyloid beta targeted therapies for Alzheimer's disease. This decision effectively denies all Medicare beneficiaries access to ADUHELM. We are very disappointed by the final NCD. As a result, we will substantially eliminate our commercial infrastructure for ADUHELM while retaining minimal resources to manage patients' access programs, including a continued free drug program for patients currently on treatment in the U.S. We expect to continue funding certain regulatory and R&D activities for ADUHELM, including the EMBARK redosing study and the initiation of our Phase IV post-marketing requirement study, ENVISION. Additional actions regarding ADUHELM may be informed by upcoming data readouts expected for this class of antibodies and further engagement with the FDA and CMS. In parallel, we are committed to working closely with Eisai on the potential launch of lecanemab. We are looking forward as we work to advance our broader pipeline, including lecanemab and zuranolone, execute on our base business and deploy our capital in the best interest of shareholders. We recognize that Biogen is facing a number of near-term challenges, including generic erosion of TECFIDERA, competition for SPINRAZA in biosimilars, and a declining profit share from RITUXAN in the U.S. These challenges are all part of the biopharmaceutical business life cycle, and we believe that potential new product launches such as lecanemab, zuranolone, and additional biosimilars can help return the company to growth over time. Furthermore, we see potential additional growth drivers in the mid-to-late 2020s in areas such as stroke, lupus, and Parkinson's disease, and we will pursue new business development opportunities as well. However, given that we are in a long product cycle business and in light of the CMS decision, we recognize there is more we must do today to provide better clarity and visibility into the company's future. Let me share the priority actions we are implementing now. First, we are increasing our focus on R&D prioritization with the goal of maximizing the probability of success. This prioritization process will be informed in part by key data readouts expected in 2022. In Alzheimer's disease, together with Eisai, we plan to complete the rolling submission for lecanemab under the Accelerated Approval Pathway in the U.S. during the second quarter of this year. Additionally, we expect a readout of the Phase III CLARITY AD complementary trial for lecanemab this fall. Based on the results of this study, we plan to submit for full FDA approval by the first quarter of 2023, with the opportunity for lecanemab to become the first anti-amyloid antibody to obtain full approval for Alzheimer's disease in the U.S. In neuropsychiatry, we are working with Sage to advance zuranolone as an important new potential option for MDD and PPD. We recently initiated the rolling submission of zuranolone in MDD and expect to complete the filing in the second half of 2022. We also look forward to the Phase III SKYLARK study readout in PPD, expected mid this year, with an associated filing for PPD anticipated early next year. Additionally, in neuropsychiatry, we expect the Phase II readout for BIIB104 in cognitive impairment associated with schizophrenia in mid-2022. Second, we will implement additional cost reduction and productivity measures to further align our costs with our revenue base. These measures will include the substantial elimination of our commercial infrastructure supporting ADUHELM, as well as other cost reductions while continuing to fund promising pipeline and commercial opportunities. Third, we are executing on international growth opportunities with a focus on key emerging markets, such as China and certain markets in Latin America and the Middle East. This includes the continued launch of SPINRAZA and may also involve pursuing local business development opportunities. We plan to drive renewed growth in our biosimilars business, although our portfolio of NTMS products is slightly past the peak of its life cycle. We currently have four programs in development, and we are preparing to launch Bioepis, referencing LUCENTIS in the U.S. in the coming half. Our fifth near-term priority is capital allocation. Biogen has a strong balance sheet with $4.8 billion in cash as of the end of the quarter and modest net debt, as well as strong cash flow generation. Going forward, we plan to focus cash deployment towards initiatives that create incremental revenue growth opportunities while also returning cash to shareholders through share repurchases. In summary, the challenges faced by the company over the last 12 months have been significant. We are committed to leveraging all our strengths, including our talent, commercial portfolio, manufacturing capabilities, pipeline, which includes 10 programs in Phase III filed, and our strong balance sheet to deliver on our expected performance. Finally, it has been an honor to lead this outstanding company during such a challenging time and to work closely with so many dedicated colleagues. I am very proud of all we have achieved. I want to thank the Board of Directors and my colleagues for their support during this period. I will be leaving at a time of promise for Biogen, with significant potential for value creation, and I look forward to working with my successor for a smooth transition. I will now turn the call over to Priya for an update on our recent progress in R&D.

Thank you, Michel, and good morning, everyone. As Michel mentioned, we are enhancing our focus on dynamic R&D prioritization with the goal of ensuring a sustainable pipeline that can deliver on Biogen's vision of a multi-franchise portfolio. We will continue to invest in R&D in a disciplined manner, including pursuing new and external opportunities with a potentially different risk/reward profile encompassing those within our core neuroscience therapeutic areas as well as select investments in therapeutic adjacencies. This approach will be informed by emerging scientific data, as well as internal and external readouts. As part of our overall prioritization strategy, we may choose to accelerate, terminate, divest or partner certain programs. In addition, we will continue to advance key capabilities such as functional genomics, patient identification, novel modalities, biomarkers and clinical outcome measures. The goal being to reduce risk, accelerate clinical development and increase the probability of success in achieving positive proof of concept. I will now share the R&D highlights of the quarter. Starting with Alzheimer's disease. In addition to continuing the progress with lecanemab U.S. filing and the Phase 3 study, Eisai presented data at the annual ADPD meeting this past March showing that lecanemab treatment in the core Phase 2b study resulted in a dose and time-dependent reduction of brain amyloid as measured by PET SUVR and that the reduction of brain amyloid was correlated with changes in two important peripheral biomarkers of amyloid and tau pathology, specifically an increase in plasma ABN42 to 40 ratio and a decrease in plasma phospho-tau 181, respectively. Furthermore, these biomarker changes were correlated with clinical benefit as assessed by the change from baseline in the clinical dementia rating scale, Sum of Boxes. Notably, however, these peripheral biomarkers gradually began to reverse upon discontinuation of lecanemab treatment at the end of the core study, suggesting that stopping dosing prematurely may allow re-accumulation of Alzheimer's disease pathology. Eisai also presented additional information on ARIA from the lecanemab Phase IIb study. This included the incidence of ARIA-E in the open-label extension where ARIA-E was observed in less than 10% of participants receiving 10-milligram per kg lecanemab biweekly and a symptomatic ARIA rate of less than 2%, consistent with the core study. We look forward to further defining the safety and efficacy of lecanemab through the larger Phase 3 CLARITY AD study. Biogen and Eisai are currently evaluating subcutaneous dosing in a sub-study of the CLARITY AD open-label extension, which will evaluate subcutaneous injections compared to IV infusions. This is in addition to the ongoing AHEAD 345 study evaluating lecanemab in people with preclinical Alzheimer's disease or prior cognitive impairment, which was initiated back in 2020. Beyond lecanemab, Biogen continues to pursue new treatments across molecular targets in Alzheimer's disease. This includes actively planning for the Phase II study of BIIB080, our tau ASO, and initiation of dosing in the Phase I study of BIIB113. BIIB113 is a small molecule inhibitor of O-GlcNAcase or OGA, an enzyme believed to catalyze the removal of O-GlcNAc post-translational modification of the tau protein. By inhibiting OGA, we aim to increase the oglicmulation of tau to potentially inhibit tau aggregation and thereby slow clinical decline. As Michel mentioned, with aducanumab, we are also continuing to collect data in our EMBARK redosing study and working towards the initiation of the ADUHELM Phase IV post-marketing requirement study ENVISION. Moving to neuropsychiatry. Biogen and Sage recently announced that we initiated the rolling submission of a new drug application to the FDA for zuranolone in MDD. We expect to complete the filing in the second half of this year. We were also excited to announce that the zuranolone Phase III CORAL study in major depressive disorder met the primary endpoint and key secondary endpoint. The CORAL study was a randomized blinded trial designed to assess rapidity of response when zuranolone 50 milligrams is co-initiated with an open-label standard of care antidepressant versus placebo who initiated with the standard of care, as measured by the change from baseline on the 17-item Hamilton Depression Rating Scale. Top line results showed that zuranolone co-initiated with standard of care resulted in a statistically significant reduction in depressive symptoms at day 3, the primary endpoint and the earliest time point measured, as well as over the full 2-week treatment period as compared to placebo co-initiated with standard of care. Zuranolone was generally well tolerated with most treatment-emergent adverse events reported as mild to moderate. In MDD, zuranolone has now delivered four positive randomized controlled trials in total, as well as important insights on repeat treatment from the SHORELINE study, a large prospective naturalistic study in MDD. While these trials were designed to address different questions, we see a consistent profile of zuranolone that includes rapid reduction in depressive symptoms compared to the standard of care antidepressants, a consistent tolerability profile with a low discontinuation rate due to adverse events and without observed weight gain, sexual dysfunction or suicidal ideation; a short course of treatment that can be potentially taken as needed; and a flexible treatment approach that may provide optionality to healthcare providers and patients. This is in addition to positive data from the Phase III ROBIN study of zuranolone in postpartum depression. We look forward to the Phase III SKYLARK study readout in PPD expected by midyear with an associated filing for PPD anticipated early next year. We look forward to potentially bringing a rapid onset, well-tolerated oral antidepressant with sustained effects and a new mechanism of action to patients suffering from depression. Moving to ALS. We previously reported that while the Phase III VALOR study for tofersen in SOD1 ALS, a rare genetic form of ALS, did not achieve the primary endpoint of a statistically significant change on the ALSFRS-R at week 28 versus placebo, we did observe signs of reduced disease progression across multiple secondary and exploratory endpoints. We plan to present integrated data from the Phase III VALOR study and a new interim analysis of its ongoing open-label extension at the upcoming ENCALS meeting in June. This interim analysis includes data from participants with SOD1-ALS who had the opportunity for at least one year of follow-up from the start of VALOR. Long-term data on measures of function, strength, quality of life and survival will be presented. We also continue to recruit for ATLAS, a study evaluating tofersen in presymptomatic participants with a confirmed SOD1 mutation, while also supporting the global tofersen expanded access program, which includes approximately 120 people with SOD1-ALS to date from more than a dozen countries. We also remain engaged with regulators on potential next steps for tofersen. As you can see, 2022 is an important year for Biogen R&D with several important milestones expected as we continue to advance a diversified pipeline that contains a total of 32 clinical programs with 10 programs in either Phase III or being filed. These milestones include key regulatory filings, mid- to late-stage readouts in both Alzheimer’s disease and neuropsychiatry, initiation of late-stage studies in Parkinson's disease, and starting a pivotal study in cutaneous lupus erythematosus, in addition to ongoing recruitment for 2 Phase III lupus programs in SLE, as well as planning next steps for the BIB131 stroke program. In summary, we are taking actions that we believe will enable delivery of a number of potential first-in-class and best-in-class molecules to patients suffering from diseases with significant unmet need. I will now pass the call over to Mike.

Thank you, Priya, and good morning, everyone. I will provide some key highlights around the financial performance for the quarter and review our full year 2022 guidance. Please note that all financial comparisons are versus the prior year, unless otherwise noted. Total revenue for the first quarter was $2.5 billion. Our MS business inclusive of OCREVUS royalties delivered $1.6 billion in revenue. TECFIDERA continues to be impacted by generic entry in the U.S. and was negatively impacted by pricing pressure outside of the U.S. VUMERITY first quarter global revenue was $128 million. We are pleased with VUMERITY's trajectory in the U.S. and are making good progress towards launching in up to 20 markets outside the U.S. this year. TYSABRI global revenue increased 3%. In the U.S., TYSABRI revenue benefited from favorable pricing that more than offset modest volume declines. Outside the U.S., we were pleased to see continued patient growth. Interferon global revenue declined by 23% due to the continued shift from the injectable platforms to oral or high efficacy therapies. Moving now to SMA. SPINRAZA global revenue declined 9%. In the U.S., although revenue growth of 10% was driven by positive channel dynamics, we were encouraged to see new patient starts at the highest levels in over 2 years and a continued slowdown of discontinuations versus the prior quarter. Outside the U.S., the revenue decline was driven primarily by the timing of shipments in certain markets, competition and negative currency impacts, partially offset by strong initial uptake in China as this was the first full quarter since receiving national reimbursement in China. Global SPINRAZA revenue grew 7% versus Q4 of 2021, driven by solid sequential performance outside the U.S. as well as some seasonality dynamics in the U.S. Moving to our biosimilars business, revenue declined 5%. While volume increased, this was more than offset by pricing pressure and negative currency impacts. In April, we completed the transaction to sell our equity stake in our biosimilar joint venture. As a reminder, the economics for anti-TNF and ophthalmology programs will be substantially unchanged. In addition, we are preparing to launch Bioepis the U.S. in the coming months. We expect a gradual launch with more meaningful revenue contribution starting in 2023. Overall, we expect full year biosimilars revenue to decrease versus the prior year due to pricing pressure in Europe. Total anti-CD20 revenue grew 3% with increased OCREVUS royalties being partially offset by a continued decline in RITUXAN revenues due to biosimilar competition. First quarter gross margin was negatively impacted by a $275 million charge for ADUHELM inventory write-offs, as well as approximately $45 million of idle capacity charges. Note that Eisai's share of these charges is reflected in the collaboration profit-sharing line. Moving now to expenses and the balance sheet. Q1 non-GAAP R&D expense was $552 million. Non-GAAP SG&A was $635 million, including approximately $80 million related to ADUHELM. Eisai's share of these costs are also reflected in the collaboration profit-sharing line. First quarter collaboration profit-sharing reduced our net operating expense by $117 million, which includes reimbursement of approximately $182 million from Eisai, partially offset by $64 million of net profit-sharing expense related to our collaboration with Samsung Bioepis. In the first quarter, we generated approximately $162 million in cash flow from operations, which was negatively impacted by the timing of certain payments. Capital expenditures were $58 million and free cash flow was approximately $104 million. We ended the quarter with $7.3 billion in debt, $4.8 billion in cash and marketable securities, and $2.5 billion in net debt. We subsequently also received approximately $1 billion from the sale of our JV equity to Samsung Biologics. Additionally, our $1 billion revolving credit facility was undrawn as of the end of the quarter. Overall, we remain in a very strong financial position with significant cash and financial capacity to invest in growing the business over the long term. Let me now turn to our updated full year guidance for 2022. We are reaffirming our full year revenue guidance of $9.7 billion to $10 billion. This revenue guidance reflects the strengthening of the U.S. dollar from January 1 through April 29, resulting in an estimated currency headwind of approximately $120 million, net of hedging activities. We are also reaffirming our full year non-GAAP diluted EPS guidance of $14.25 to $16, despite the $0.76 impact of ADUHELM inventory write-off as well as an impact of approximately $0.35 related to the strengthening of the dollar that I just mentioned. Although our prior guidance did not assume either the inventory write-offs or the currency headwinds, we believe the additional cost measures announced today as well as better performance in our base business can largely offset these impacts. This financial guidance assumes continued declines in RITUXAN revenue due to biosimilar competition as well as continued erosion of TECFIDERA revenue in the U.S. due to generic entry. This guidance also continues to assume the potential entry of TECFIDERA generics in the EU in the second quarter of 2022. We expect to decrease revenue from these high-margin products as well as the ADUHELM inventory charges to reduce our gross margin percentage when compared with 2021. This guidance reflects the initial implementation of the additional cost reduction and productivity measures, which Michel discussed. These additional measures are expected to yield approximately $500 million in annualized savings in addition to the previously communicated initiatives already targeting approximately $500 million in annualized savings. This brings total expected annualized savings to approximately $1 billion, a portion of which will be reinvested in strategic initiatives over the coming years. We expect non-GAAP R&D expense to be between $2.2 billion and $2.3 billion, which is unchanged from our previous guidance. Non-GAAP SG&A expense is expected to be between $2.3 billion and $2.4 billion, which is a decrease from prior guidance of $2.5 billion to $2.6 billion, which is due to the additional cost reduction measures just mentioned, which we expect to primarily impact the third and fourth quarters. This guidance assumes that foreign exchange rates as of April 29 will remain in effect for the remainder of the year, net of hedging activities and does not contemplate any further strengthening or weakening of the dollar throughout the year. We assume that we will utilize a portion of the remaining share repurchase authorization of $2.8 billion throughout the year. Please see our press release for other important guidance assumptions. So in summary, we continue to execute on our core business objectives this quarter and are now focused on a set of near-term operational priorities, which we believe can drive value creation over time.

Great. Good morning, thanks for taking the question. Michel, I was hoping you could comment on the CEO transition here in terms of timing as well as what the Board is looking for in terms of the successor, and wishing you all the best in the transition. Thank you.

Thank you, Matthew. 5.5 years is a good term and if you look at my professional history, this was approximately the tenure in every key posting that I've had. I've given a lot, and I will continue to do so as a priority during the transition to support the team so that we can continue to deliver. Today, we reaffirmed our guidance. The business momentum is going as well as it could despite the competition and the life cycle events that we are facing. We are excited about the readouts to come. And the ADU and the anti-amyloid story is still unfolding. So the story will continue. And I'm very excited about the opportunity to have new readouts in that space that will best inform everything we've heard, including decisions. So the CEO transition is a natural event. And is there always an ideal timing? I'm not sure. But I think that after 5.5 years, while we have a strategy that is pretty visible to all of you being a specialized company in neuroscience with some immuno assets that are very important and in Phase III with the biosimilars and the digital health, I think the company is well positioned. It's good to have at one stage somebody else who comes with the support of the Board and basically revisit the assumptions. So I think that this will be good for everyone involved. And my focus again will be on the company. It's not about me. It's about the company, on the team and on a smooth transition. Business continues. I will be meeting all of you in the coming days in person in Boston and New York. I will be traveling with my team in Asia at the end of the week to meet our key partners and potential future partners and support our team and meet with PMDA also. So the business continues, and I will be at the top of it until the last second.

Thank you for taking my question. I want to focus on cost for a moment. I'm trying to understand the actual cost savings. I'm a bit confused because the SG&A guidance was reduced, yet the overall guidance remained unchanged. A simpler way to think about this is: what is our true direction regarding OpEx in the medium term? I recall when I began covering Biogen, you were a leader in MS with over $4 billion in marketed MS revenues, while SG&A was only $1 billion. Now, MS revenue is about $5 billion, but SG&A has increased to $2.5 billion. Additionally, you have some biosimilars and SPINRAZA. I’m not suggesting that SG&A should drop to $1 billion, but can we expect a significant rebasing of SG&A in the business? Thank you.

Thank you for the question, Umer. The cost savings we discussed today include an additional $500 million run rate primarily associated with the ADUHELM infrastructure. We had previously anticipated about $400 million in 2022, so this reduction is quite significant. In our SG&A guidance, we have lowered that by around $200 million, which is a major part of these savings. Additionally, we will examine some non-revenue-generating areas in G&A and other segments to reach that run rate. As mentioned in our earlier remarks, we might invest portions of the $500 million savings into future growth initiatives, with a primary focus on returning to growth. In closing, I want to reaffirm our guidance despite the challenges presented by inventory write-offs and currency fluctuations. This affirmation is due to our cost-cutting initiatives and stronger-than-expected top-line performance at the beginning of the year. Notably, SPINRAZA and the CD20s have performed better than anticipated, contributing equally to our ability to maintain EPS. We will continue implementing necessary cost measures to align with our revenue progress. I hope this provides some useful insights.

And a couple of comments to consider, Umer. The first one is that at that time where you started to cover, it was mostly U.S. business only. And this is not the case today. And the second point is that there were very few DMTs in the class, and now it's extremely crowded and Biogen is still the leader globally in each one of those being SMA, being MS and being NTMS in Europe. So this takes some muscles and, obviously, skills. And we have made tremendous progress in terms of using digitalization and all the means of engaging, but we get the point, and this is compounded by the investment we have made on ADUHELM that we're eliminating.

Hi, thanks for taking the question. So, the first one is just for Priya. You talk about how new data showing lecanemab. When you stop it, it suggests that you could have some decline in cognition. Can you just talk about any more updates as to why you think that is? And if you think there's a difference in the mechanism versus Lilly's drug? Another thing you mentioned, you did mention also about potentially divesting products. I wanted to know if you could elaborate on what you're referring to. Thank you.

Priya?

Thank you for your question. First, I want to discuss lecanemab. The data I mentioned comes from the gap period in the open-label study, followed by the open-label extension of the Phase II trial. This suggests that our understanding of the ideal treatment duration is developing, which is essential to recognize. The field is advancing, and we observed two biomarkers—the AB ratio and plasma phospho-tau 181—both of which showed a decline, which raises concerns. Eisai is taking the lead in exploring how maintenance can be applied through their open-label extension in the Phase II study and will provide more data in the near future. Regarding donanemab, I can only reference the public data available. We haven't observed the long-term effects of stopping treatment, particularly concerning amyloid plaques and phospho-tau levels after discontinuing lecanemab. This data is crucial for making a fair comparison. Currently, we, along with Eisai, believe that stopping treatment too soon can lead to regression. Now, about divestiture, we are thoroughly reviewing our entire R&D portfolio and making strategic decisions based on prioritization. This means evaluating our disease areas and therapeutic specialties, focusing on where we excel and have strong internal capabilities. For example, we recently filed for zuranolone, a significant step in neuropsychiatry, and we anticipate upcoming results for BIIB104, aimed at cognitive impairment linked to schizophrenia. Our strategy is to concentrate on areas of success and expertise, including our three lupus programs, and we are open to expanding indications as we gather more data. We are committed to a disciplined methodology in our integrated prioritization, which might lead us to partner or externalize certain assets. This is what I mean by divestment. Overall, this is part of a wider, coordinated R&D strategy. Thank you.

Operator, please proceed with the next question. We are experiencing technical difficulties and will try to reconnect to the call.

Good morning, thanks for taking my question. In terms of your capital allocation strategy to drive growth, how much of a priority is business development?

Salveen, hi, Mike McDonnell, and thank you very much for the question. Business development has been and continues to be our priority. And we have a pipeline that we feel good about, and we will continue to look to supplement that through business development transactions as we have done in the past. And at the same time, we will continue to return capital to shareholders. So it will continue to be a balance and business development has been and will continue to be a priority.

Thank you. Following up on Michel and Priya's comments around R&D portfolio prioritization. Is it safe to say that you would consider anything on the table in terms of divesting, partnering, out-licensing, bringing in stuff, but just the concept that anything is on the table with regards to even including product lines or franchises at the whole portfolio and always is all on the table? Can you clarify that? Thank you so much.

Thank you, Michael. Yes, I would say that across the board, we are going to be driven by science and integration and maximizing the value that we bring to patients with diseases of high unmet need. So I think we would evaluate all options. But I think the science has to be the driver, and that's how we would do the evaluations. So yes, exactly as you said.

Would you include commercialization businesses and franchises as well?

Potentially for some, but not for all. I think that Biogen will remain on the upper hand on a few priorities, but we'll be open to look for partnering on others. But it's for Priya and the team to determine with the support of the governance of the company.

Good morning, guys. Thanks for taking the question. I'm curious, what is significantly scaling back ADUHELM's commercial infrastructure, say, if anything, about your expectations for the Phase III lecanemab data? Or is it simply too long to wait until you get full approval even if lecanemab is successful in CLARITY AD? And along those lines, can you remind us of how your responsibilities for commercialization on that front might be any different than with ADUHELM? Thank you.

So we do expect the Phase III readout in the fall of this year. And we are discussing in full alignment with a partner the operational details beyond lecanemab. But based on the timing, it will make no sense to carry such a large team for such a long time. So I think it's the right decision. The preparation that was made on the infrastructure is there, and there is certainly a big benefit for the entire class moving forward. But we could not afford to keep the team, unfortunately, for that many months. So I think it's the right decision. Our sentiment for lecanemab does not change, just to be clear.

Yes, good morning. Just to continue on with the R&D topic. I think the view from the outside world has been that the pipeline has always been a little bit high risk, high reward, and that's probably not that surprising just because this is CNS. But now that you're going to take a look at the pipeline and really kind of change the way you're viewing things, how much does that change, factor into whether you start to diversify more away from CNS? And if you're going to stay within CNS mostly, how do you change the probability of success projects to lower risk projects? And how do you do all of this change, given that there's also a management change going on? And how much board is supportive and I think you understand the context of the question. Thank you.

Yes, absolutely. And I think it's a very important question. It's all about having the right priorities and somehow rebalancing the risk profile of the portfolio. And we know that. And this goes with neuroscience. That Priya will say more.

Thank you, Marc. That's a very relevant question. Our approach is twofold. First, we will remain focused on neuroscience, as it is a crucial part of our expertise and talent pool, and we are committed to building on our strengths in this area. However, we are also open to opportunities outside of it. For instance, we have shown our capability with the zuranolone filing and the upcoming 104 readout. Additionally, we are exploring work in lupus, which is a specialized immunology area, and we may look into further indications and opportunities within that space. This strategy allows us to diversify and manage our risk, recognizing that success rates can fluctuate when venturing beyond neuroscience. Given our deep knowledge and experience in neuroscience, we believe we can enhance our chances of success by leveraging our strengths in biomarkers, clinical development, functional genomics, and human validation. These methodologies will help us increase our likelihood of achieving proof of concepts. It's important to note that we also focus on our four pillars, including biosimilars and digital health, while exploring integration with digital options. Our strategy is holistic, assessing the portfolio's overall value rather than narrowing our focus. We have the ability to explore various modalities and are prioritizing the best approaches based on disease targets rather than merely exploiting available modalities. I hope this provides some insight into our approach. Additionally, regarding your question about management dynamics, I want to emphasize that I currently hold significant authority and am actively making decisions on prioritization moving forward.

Good morning. Thanks so much for taking my questions. And best wishes to Michel with the transition. What's your latest sense of the FDA stance on accelerated approval for beta amyloid antibodies, just with some of the changes in leadership and initiatives at the agency? And then I know the FDA has agreed that CLARITY AD could serve as a confirmatory study following accelerated approval of lecanemab. But can you clarify, if you don't receive accelerated approval, whether that Phase III could stand on its own to support full approval or whether you need an additional study?

Thank you for the comments. Priya?

Thank you. I'll take a moment to say that the accelerated approval pathway is a highly rigorous and scientific regulatory process that has existed for several years. Numerous products have successfully utilized this pathway, benefiting many patients across the United States. While I acknowledge there is ongoing dialogue around this topic, I don't foresee any major changes occurring at this time. There may be enhancements or refinements to the regulatory pathway as we gather more insights, but I believe our confidence in the accelerated approval pathway remains strong. It is still a crucial means of providing necessary products to patients today. Regarding CLARITY AD, as has been publicly shared by Eisai and us, they have begun the filing based on the Phase II study through the Accelerated Approval Pathway, with FDA agreement. Eisai has stated that CLARITY AD could function as a confirmatory study. To address your question about the potential for unclear or ambiguous results from CLARITY AD and the possibility of still obtaining approval, it would be speculative for me to provide a definitive answer. A reasonable approach, depending on the data, would be to engage in discussions with the FDA, as the science is quite complex. The key is to continuously evaluate the science and the emerging data to assess the strength of the evidence, which will ultimately influence the outcome. Thank you.

Thanks for the question. I just wanted to jump on to other questions on lecanemab and just wanted to know, strategically, how important is having a robust Alzheimer's pipeline to you guys? I mean, when you look at the infrastructure that you have from an R&D perspective, clearly, there are lessons to be learned from aducanumab. But I wanted to ask you, is there an opportunity or is there a potential to bring in other assets behind lecanemab to kind of further expand the Alzheimer's piece?

Thank you. First and foremost, we are dedicated to Alzheimer's disease. We are fortunate to have two Abeta removal agents, lecanemab and aducanumab, for which we continue to invest in EMBARK and ENVISION. We believe these studies will yield significant scientific data that could influence both the product and the field as a whole. Our commitment to early Alzheimer's disease programs remains strong. For instance, we have BIIB080, our anti-tau ASO, and BIIB113, an OGA inhibitor, which represent different approaches to addressing tau pathology. Additionally, we have several other assets targeting various pathways that I cannot discuss at this time. Our dedication to Alzheimer's disease is unwavering, and we are applying the lessons learned from our scientific endeavors as well as our clinical development strategies. We are actively enhancing our clinical development capabilities in this area. Regarding new opportunities, we constantly evaluate external assets and are open to exploring them. At any time, we are considering numerous opportunities, and we are guided by science and the value it presents. So, to reiterate, we are very much interested and remain deeply committed to Alzheimer's disease. Thank you.

Thanks for taking the question. And thanks to Michel for his constant dedication to patients. My question is about the balance sheet. And if you were to pursue a larger business development transaction, how much debt would you be willing to take on? Thank you.

Jay, it's Mike. Thanks for the question. And I think that when you look at our balance sheet, we're in a very good place. We ended the quarter with $4.8 billion of cash. We received another $1 billion from Samsung in April. So we've got the better part of $6 billion of cash on hand. And when you look at our current debt levels, we're at two turns of EBITDA and gross debt and less than 1 turn net debt. So if you hypothetically added a turn of debt, not saying we wouldn't, but it's a hypothetical, that's about $8 billion worth of capacity that we have. And I think that our goal is to deploy that as accretively as we can with the number 1 goal being to bring ourselves back to growth over time. We've done about 30 deals and deployed about $6.5 billion in business development over the last 5.5 years. We will continue to prioritize business development along with returning capital to shareholders. It will be a balance. And I would say that we do have capacity for some incremental debt, but we've got so much cash on hand right now that adding debt is not something that we would obviously be needing or looking to do in the near term. So hopefully, that's helpful.

Good morning. Thanks for taking my question. I want to follow on to Brian's on the CLARITY AD study. Could you talk in a bit more detail about the design of the trial, in particular, what's the powering on the primary endpoint of CDR Sum of the Boxes? What is a clinically meaningful difference between drug and placebo and CDR-SB? And then in terms of the p-value, if this is a single Phase III study, what p-value is necessary for success? Is 0.05 sufficient or do you need 0.01?

Thank you. So first of all, CLARITY AD, we haven't spoken externally about the powering of the study, but Eisai has commented on it. In the Phase II study, we had several arms and the outcome was empowered for CDR Sum of Boxes. That is actually very different. Phase II has informed how Phase III has been designed and it is powered to detect a statistically significant difference on CDR Sum of Boxes. So that's one aspect I wanted to cover. The second is that CDR sum of boxes, we believe, is the right primary endpoint for this patient population and for the MCI in early Alzheimer's disease. This has cognitive and functional elements. We believe that it is the most relevant primary endpoint. And we feel that we are fairly confident in the design of the study to kind of give us the outcome. Now what kind of p-value is very hard, I would be speculating, so I won't speculate here. But we feel that the study is designed appropriately and that the results would be important to review. I think in terms of clinical meaningfulness, we have done a lot of work ourselves. There's a lot of external dialogue. And we do believe that, honestly, the EMERGE data that we had with the 22% difference is highly clinically relevant and clinically meaningful to KMEs and to patients. So we've done a lot of work around this. And I'm sure you've seen that in the public domain. Beyond that, I don't think I can comment on it. Thank you.

Operator, I think we have time for one final question.

Thank you for having me. I have a question for Mike regarding your comments on share repurchases. Given that the company's cash flow isn't as strong as it was a couple of years ago, and considering the need for diversification or acquiring more assets, why are share repurchases currently a priority for you?

Yes. So thank you for the question, Mohit. And obviously, we did not buy any shares back during the quarter, and you shouldn't be looking quarter-to-quarter because that can vary depending on what we have in the way of business development activity, timing of windows, other considerations, et cetera. But we do expect to utilize a portion of the $2.8 billion that remains throughout the remainder of 2022, and we continue to believe that our stock is a good investment. But at the same time, you obviously will not see us repurchasing shares at the pace that you saw back 2, 3, 4 years ago because of the situation with TECFIDERA and RITUXAN, but we do continue to see it as a good investment and it will be a balance between BD and share repurchase as we go. But we'll be smart and balanced about it. And our capital allocation, as we mentioned, is one of our key operational priorities as we look forward throughout the rest of 2022.

And that concludes our call for today. Thank you, everyone, for joining us.