Biogen, in collaboration with Eisai, is gearing up to release Leqembi, a groundbreaking therapy for Alzheimer's disease that recently obtained full approval from the FDA. As part of its preparations, the company is implementing a staff reduction of around 1,000 employees. This downsizing represents approximately 11% of Biogen's workforce at the end of 2022.
The cost-saving initiative is estimated to save the company $1 billion annually in gross operating expenses. Out of these savings, $300 million will be allocated to support product launches and research and development efforts.
Upon the announcement, Biogen's stock initially experienced a rise during premarket trading but ultimately declined by 3.3% to $268.30.
Despite the slight setback in stock performance, Biogen reported stronger-than-expected earnings for the second quarter. Non-GAAP diluted earnings came in at $4.02 per share, surpassing the consensus estimate of $3.77 per share by FactSet. Quarterly revenue stood at $2.5 billion, in line with the anticipated $2.4 billion.
The company maintains its previously-projected earnings guidance for the year, projecting earnings between $15 and $16 per share.
Biogen's newly-appointed CEO, Christopher Viehbacher, is focused on stabilizing the company amidst a host of challenges. The aging multiple sclerosis franchise and intensifying competition facing other major products necessitate strategic measures.
Viehbacher has identified two significant opportunities on the horizon: the ongoing launch of Leqembi and the development of zuranolone, an innovative depression pill in collaboration with Sage Therapeutics (SAGE).
Leqembi stands out as the first Alzheimer's treatment to demonstrate a convincing ability to slow down disease progression. Medicare has shown indications of providing extensive coverage for this drug, although its rollout is anticipated to be intricate, resulting in gradual revenue growth over time.
Transitioning Towards Cost Savings
The company has recently made a series of cost-saving measures, including the elimination of the commercial infrastructure for its previous Alzheimer's therapy, Aduhelm. This cost-cutting program, announced in May 2022, was expected to result in annualized savings of $1 billion.
Reflecting on the company's transition, Viehbacher stated during an investor call on Tuesday that, "We have been very focused on multiple sclerosis over 45 years. We had some very prosperous times in the more recent history of the company. And as we have seen a reversal of fortunes in some of those products, I don't think we as a company have really made the changes in our organizational structure and our cost base to really reflect that transition."
Analysts have noted that the latest round of layoffs exceeded expectations and will likely have a significant impact on the company's financial outlook. "This is a little larger program than expected," commented Leerink Partners analyst Marc Goodman in a note on Tuesday morning. Mizuho analyst Salim Syed also projected that the cuts will increase earnings per share by 20% in 2025.
While the net amount of the expense reduction may not be massive, it is expected to satisfy investors in the short term. Mizuho healthcare equity strategist Jared Holz remarked in an email to investors on Tuesday morning, "The expense reduction may not be significant, but it should be enough to appease the Street as the Company demonstrates greater financial discipline leading up to an important drug launch."
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