Biogen Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited results; amounts below are in U.S. dollars unless stated otherwise.
Business context
Biogen is a biopharmaceutical company focused on neurological and neurodegenerative diseases, including multiple sclerosis (MS), spinal muscular atrophy (SMA) and Alzheimer’s disease, and also commercializes biosimilars. Revenue is concentrated in its marketed products and anti-CD20 collaboration rights.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $3.600 billion | $3.439 billion | $10.707 billion | $9.927 billion |
| Operating income | $1.806 billion | $1.698 billion | $5.265 billion | $4.446 billion |
| Net income attributable to Biogen | $1.546 billion | $1.444 billion | $4.449 billion | $3.484 billion |
| Diluted EPS | $8.39 | $7.15 | $23.35 | $16.83 |
| Operating margin | 50.2% | 49.4% | 49.2% | 44.8% |
| Net margin | 42.9% | 42.0% | 41.5% | 35.1% |
Q3 revenue increased 4.7% year over year; nine-month revenue increased 7.9%. Q3 product revenue was $2.895 billion (+4.1%), anti-CD20 program revenue was $595.8 million (+16.4%), and other revenue was $109.6 million (−25.5%). Nine-month operating cash flow was $5.118 billion, versus $4.292 billion in 2018. Investing activities used $237.9 million and financing activities used $3.744 billion, principally reflecting share repurchases.
At September 30, cash and cash equivalents were $2.344 billion and marketable securities totaled $3.907 billion. Total debt was $5.954 billion, implying approximately $298 million of net cash against those balances. Current assets were $8.448 billion and current liabilities were $4.432 billion (working capital $4.016 billion; current ratio about 1.91). The $1.495 billion notes due in September 2020 were classified as current. The $1.0 billion revolving credit facility had no borrowings, and Biogen reported compliance with its covenants.
Material changes and operating drivers
- Growth reflected higher SPINRAZA revenue (+17.0% in Q3), biosimilar revenue (+36.2%), and anti-CD20 revenue, including OCREVUS royalties. TECFIDERA was broadly stable in the U.S.; U.S. Interferon revenue declined 14.5% in Q3.
- For the first nine months, MS product revenue declined 0.8%, while SPINRAZA revenue rose 23.9% and biosimilar revenue rose 39.4%.
- Q3 diluted EPS rose 17.3%, faster than revenue, supported in part by a lower effective tax rate (11.9% versus 20.4%). The nine-month effective tax rate was 16.3% versus 21.3%.
- Q3 expenses included a $215.9 million impairment of BG00011 after discontinuation of its IPF study for safety concerns; a $61.2 million reduction in related contingent consideration partly offset the impact. The Hillerød divestiture generated a $95.5 million pretax loss for the nine-month period and a $64.7 million tax expense; the filing reports a total net loss of approximately $160.2 million for the transaction.
- Biogen acquired Nightstar Therapeutics for approximately $852 million, adding ophthalmology gene-therapy programs. It sold its Hillerød manufacturing operations, receiving approximately $881.9 million, subject to adjustments. It recorded an estimated $114 million adverse commitment related to minimum production guarantees.
- Nine-month share repurchases were approximately $3.8 billion. The company had a $5.0 billion 2019 repurchase authorization, with approximately $2.9 billion remaining as of October 21, 2019.
Outlook, commentary and risks
Management did not provide quantified company-wide revenue or earnings guidance in the supplied filing text. Product commentary anticipated 2019 growth in TECFIDERA demand globally, continued declines in Interferon revenue, stable global TYSABRI demand, moderating SPINRAZA growth, and strong biosimilar revenue growth, primarily from IMRALDI. Management said it expected to fund operations and planned requirements from operating cash flows and existing resources.
After quarter-end, on October 22, Biogen and Eisai said they planned to pursue U.S. regulatory approval for aducanumab, following a new analysis of the discontinued EMERGE and ENGAGE trials; the filing reports that EMERGE met its primary and secondary endpoints. This announcement was subsequent to the September 30 reporting date and is not assurance of approval. The FDA also issued tentative approval for diroximel fumarate (VUMERITY) in October.
Key risks include intense competition and drug-pricing and reimbursement pressure; potential generic entry and ongoing patent challenges involving TECFIDERA; competition to SPINRAZA from an approved gene therapy; clinical, safety and regulatory uncertainty across the pipeline; reliance on collaborators and third-party manufacturers; and foreign-exchange, tax and legal contingencies. The filing notes ongoing government inquiries regarding sales and promotional practices and patient-assistance programs. It states that possible losses in certain litigation cannot currently be estimated. Biogen also disclosed that Samsung BioLogics, its Samsung Bioepis joint-venture partner, was subject to an ongoing criminal investigation.
Important facts for investors to verify
- Progress and regulatory outcomes for aducanumab and VUMERITY, including any subsequent trial, FDA or commercialization updates.
- TECFiDERA patent litigation and the timing and potential impact of generic competition; also monitor biosimilar competition affecting anti-CD20 collaboration profits.
- SPINRAZA demand, pricing and competitive effects from gene therapy, alongside growth in OCREVUS royalties and biosimilars.
- Whether the Hillerød minimum-production guarantee, estimated at $114 million, or related indemnities require additional charges or adjustments.
- Debt refinancing or repayment plans for the $1.5 billion notes due in 2020, and the balance between repurchases, investment and pipeline spending.
- Developments in government investigations, patent disputes, tax matters and the Samsung BioLogics investigation, where outcomes or exposures may be uncertain.